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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 0-4714
UNITED PARCEL SERVICE OF AMERICA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-1732075
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
55 Glenlake Parkway, N.E. 30328
Atlanta, Georgia (Zip Code)
(Address of Principal Executive Offices)
(404) 828-6000
(Registrant's telephone number, including area code)
________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
_________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.10 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1999, the aggregate market value of the common stock
held by non-affiliates of the registrant, based on a price per share of $43.00,
the price per share at which the registrant expressed its willingness to
purchase its shares from shareowners wishing to sell their shares, was
$22,828,300,788.
The number of shares of United Parcel Service of America, Inc. Common Stock
outstanding as of February 28, 1999 was 558,650,086. The number of outstanding
shares of United Parcel Service of America, Inc. Common Stock subject to the UPS
Managers Stock Trust, as amended and restated, the UPS Employees Stock Trust and
the UPS Qualified Stock Ownership Plan and Trust, as of February 28, 1999, was
355,220,485.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual
meeting of shareowners scheduled for April 29, 1999 are incorporated by
reference into Part III of this Report.
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PART I
Item 1. Business
United Parcel Service of America, Inc. ("UPS"), through its subsidiaries,
provides specialized transportation and logistics services, primarily through
the pickup and delivery of packages and documents. Service is offered throughout
the United States and over 200 other countries and territories around the globe.
In terms of both revenue and volume, UPS is the largest package distribution
company in the world, with revenues of over $24 billion in 1998 generated by the
delivery of more than three billion packages and documents. UPS provides service
for over 1.6 million customers.
With minor exceptions, UPS Common Stock, $.10 par value per share (the
"Common Stock"), is owned by or held for the benefit of its active employees and
their families, former employees and their estates or heirs, charitable
foundations established by UPS founders and their family members or by other
charitable organizations that acquired stock by donations from shareowners or
from UPS itself. UPS Common Stock is not listed on a national securities
exchange or traded in the organized over-the-counter markets.
UPS was originally organized in the State of Washington in 1907 and was
reincorporated in the State of Delaware in 1930. When used herein, the terms
"UPS" and the "Company" refer to United Parcel Service of America, Inc., a
Delaware corporation, and its subsidiaries.
Delivery Service in the United States
UPS offers pickup and delivery of packages by means of ground and air
transportation throughout the United States, with electronic tracking
information available for all services. United States domestic package
operations accounted for approximately 83.3%, 84.0% and 84.4% of the Company's
consolidated revenue in 1998, 1997 and 1996, respectively. For additional
financial information relating to package and non-package operations, see Note
10 to the Consolidated Financial Statements filed herewith.
Ground Services
For most of its history, UPS has been engaged primarily in the delivery of
packages traveling by means of ground transportation. This service was expanded
gradually, and today standard ground service is available for interstate and
intrastate destinations, serving every address in the 48 contiguous states and
intrastate in Alaska and Hawaii. Service is restricted to packages that weigh
no more than 150 pounds and are no larger than 108 inches in length and 130
inches in length and girth combined. In 1998, UPS introduced UPS Guaranteed
Ground(SM), which gives guaranteed, time-definite delivery of all commercial
ground packages.
In addition to UPS's standard ground delivery product, UPS Hundredweight
Service(R) offers discounted rates to customers sending multiple package
shipments having a combined weight of 200 pounds or more, or air shipments
totaling 100 pounds or more, addressed to one recipient at one address and
shipped on the same day. Customers can realize significant savings on these
shipments compared to regular ground or air service rates. UPS Hundredweight
Service is available in all 48 contiguous states.
Domestic Air Services
UPS provides domestic air delivery throughout the United States. UPS Next
Day Air(R) offers guaranteed next business day delivery by 10:30 a.m. to more
than 75% of the United States population, delivery by noon to areas covering an
additional 13% and end-of-day delivery to the remainder. Saturday delivery is
offered for UPS Next Day Air shipments for an additional fee.
UPS Early A.M.(R) guarantees next business day delivery of packages and
documents by 8:00 a.m. or 8:30 a.m. to more than 55% of the United States
population. UPS Early A.M. is available from virtually all overnight shipping
locations coast to coast. In addition, UPS Next Day Air Saver(R) offers next day
delivery by 3:00 or 4:30 p.m. to commercial destinations and by the end of the
day to residential destinations in the 48 contiguous United States.
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UPS offers three options for customers who desire guaranteed delivery
services but do not require overnight delivery. UPS 2nd Day Air A.M.(R) provides
guaranteed delivery of packages and documents to commercial addresses by noon of
the second business day. UPS 2nd Day Air(R) provides guaranteed delivery of
packages and documents in two business days, and 3 Day Select(R) provides
guaranteed delivery in three business days. Developed primarily for customers
who have time-definite delivery needs, 3 Day Select is priced between
traditional ground and air-express services.
In 1998, UPS introduced the first reusable Next Day Air letter container,
which features a resealable flap and is made from 100% recycled material. UPS
also expanded its On-Call Air Pickup services to 94% of all businesses.
In 1998, UPS continued to invest in new equipment, primarily in the form of
additional aircraft and facility expansions. During 1998, UPS took delivery of 2
Boeing 747-200, 3 Boeing 757-200 and 5 Boeing 767-300 aircraft. See
"Properties--Aircraft."
The Company's domestic regional air hubs are located in Columbia, SC;
Dallas, TX; Hartford, CT; Ontario, CA; Philadelphia, PA and Rockford, IL.
Louisville, KY is the site of the Company's all-points domestic and
international air hub, where most of the Company's air volume is processed. A
new automated sorting facility, "Hub 2000," is currently under construction in
Louisville, KY, and is expected to commence partial operations in 2000. This new
facility is expected to increase UPS's hub capacity by over 40% in Louisville.
International Delivery Service
UPS delivers international shipments to more than 200 countries and
territories worldwide, providing guaranteed overnight delivery to many of the
world's most important business centers. International package operations
accounted for approximately 13.1%, 13.1% and 13.4% of consolidated revenues in
1998, 1997 and 1996, respectively. For additional financial information relating
to package and non-package operations, see Note 10 to the Consolidated Financial
Statements filed herewith.
Throughout 1998, UPS continued to develop its global delivery and logistics
network. UPS offers a complete portfolio of services that are designed to
provide a uniform service offering across major countries. This portfolio
includes guaranteed 8:30 a.m. and 10:30 a.m. next business day delivery to major
cities, as well as scheduled day-definite ground service. UPS offers complete
customs clearance service for any mode of transportation, regardless of carrier,
at all UPS Customhouse Brokerage sites in the U.S. and Canada.
UPS Worldwide Express(SM) provides door-to-door, customs-cleared delivery
to over 200 countries and territories. This service includes guaranteed
overnight delivery of documents from major U.S. cities to many international
business centers. For package delivery, UPS Worldwide Express provides
guaranteed overnight delivery to major cities in Mexico and Canada and
guaranteed second business day delivery by 10:30 a.m. for packages to over 290
cities in Europe. Shipments to other destinations via UPS Worldwide Express are
generally delivered in two business days.
UPS Worldwide Express Plus(SM) complements the regular express service by
providing guaranteed early morning delivery options from international locations
to major cities around the world and guaranteed early morning second business
day delivery from the United States to over 150 cities in Europe. In February
1998, UPS introduced two new shipment pricing options for UPS Worldwide Express
and UPS Worldwide Express Plus, the UPS 10KG Box(TM) and the UPS 25KG Box(TM).
These new options offer a simple, convenient door-to-door fixed-rate shipping
solution for express shipments up to 10 kilograms and 25 kilograms. Customers
using this packaging option receive flat rates based on destination.
UPS also offers UPS Worldwide Expedited(SM) service, which is designed to
meet customers' requirements for routine shipments that do not require overnight
or express delivery. From the United States, shipments to Mexico and Canada are
delivered in three business days, and shipments to most major destinations in
Europe and Asia are generally delivered in four business days. Both UPS
Worldwide Express and UPS Worldwide Expedited services are offered between many
international locations and from international locations to the United States,
providing time and delivery guarantees from international locations that vary
from country to country.
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UPS International Standard service provides scheduled delivery of shipments
within and between the European Union countries; within Canada and Mexico; and
between the United States, Canada and Mexico. This service includes day-specific
delivery of less-than-urgent package shipments. The service offers delivery
typically between one and three days, depending on the distance.
The Company has a European air hub in Cologne, Germany and an Asian-Pacific
air hub in Taipei, Taiwan.
Non-Package Operations
The Company provides other services that are distinct from the package
operations, a component of which is the UPS Logistics Group, Inc. (the
"Logistics Group") discussed below. Non-package revenue accounted for
approximately 3.6%, 2.9% and 2.2% of consolidated revenues in 1998, 1997 and
1996, respectively. For additional financial information relating to package and
non-package operations, see Note 10 to the Consolidated Financial Statements
filed herewith.
Other Operations
The Logistics Group was formed in early 1996 and is the parent company for
a number of operating subsidiaries.
UPS Worldwide Logistics(R), Inc. ("Worldwide Logistics"), a subsidiary of
the Logistics Group, is a third-party provider of supply chain management
solutions for a number of industries, including high-tech, telecommunications,
apparel, automotive and electronics. Worldwide Logistics designs and operates
basic inventory, warehouse and transportation management services, as well as
complex integrated logistics services for its customers' inbound, outbound and
international logistics needs. Worldwide Logistics operates warehouses in the
United States, Mexico, Singapore, Hong Kong, Japan, the Netherlands, Germany,
Taiwan, France and the United Kingdom, using state of the art information
systems that reduce customers' distribution and capital costs.
UPS Truck Leasing(R), Inc. ("UPS Truck Leasing"), a subsidiary of the
Logistics Group, rents and leases trucks and tractors to commercial users under
full-service rental agreements. In addition, UPS Truck Leasing provides
maintenance for other companies' fleets of vehicles on a contract basis.
Some of the other companies in the Logistics Group are: Roadnet(R)
Technologies, Inc., a route scheduling software developer; Diversified Trimodal,
Inc., also known as Martrac(R), which transports produce and other commodities
in temperature-controlled trailers over railroads; SonicAir(R), Inc., which
provides same-day and next-flight-out delivery services and critical parts
warehousing to virtually any location in the United States and locations in more
than 180 countries; Worldwide Dedicated Services, Inc., which provides dedicated
contract carrier services; and UPS Professional Services(TM), Inc., which
provides logistics solutions covering all modes of transportation and markets
UPS management expertise and intellectual capital.
Electronic Services
UPS also provides a family of electronic shipping and tracking solutions
under the UPS OnLine(R) shipping system. UPS OnLine Office is software that
helps shippers streamline their shipping activities. It processes shipments,
prints address labels and tracks packages from a desktop computer. Office
software supports international shipments as easily as domestic shipments and
quickly prepares any export documentation. UPS OnLine Professional is designed
to support a complex shipping environment with solutions for domestic and
international shipping. It combines a powerful shipping and tracking system with
sophisticated information management tools. UPS OnLine Tracking software is
easily installed on personal computers and provides the user with immediate
tracking and delivery information for packages anywhere in the world. Packages
can be tracked with a tracking number or the shipper's own reference number. UPS
OnLine Host Access provides electronic connectivity with a shipper's host
computer system, linking UPS shipping information directly to all parts of the
customer's organization. UPS OnLine Host Access can be used to enhance and
streamline the customer's sales, service, distribution and accounting functions
by providing direct access to vital transportation planning, shipment status and
merchandise delivery information. UPS OnLine Compatible Solutions offer similar
benefits to customers using shipping systems supplied by third parties.
The UPS web site at www.ups.com brings a wide array of information services
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to customers worldwide. Package tracking, pick-up requests, rate quotes, transit
times and supply ordering services are all available at the
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customer's desktop. The site also displays full domestic and international
service information and provides an avenue for customers to download UPS
software.
UPS Document Exchange /SM/ is a delivery solution that utilizes the
Internet as the mode of transport. This service offers features not found in
traditional e-mail applications, such as document tracking, version translation,
scheduled delivery, delivery confirmation and security options. This gives
customers the ability to send any digitally produced material in a secured
environment, which allows them to take advantage of the speed and efficiencies
of electronic delivery.
The Company established a web site at www.ec.ups.com to support the UPS
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commitment to electronic commerce in April 1998. This site promotes the
advantages of electronic commerce and spotlights the unique position of UPS with
regard to the facilitation of commerce.
Rates
During the first quarter of 1999, rates for standard ground shipments were
increased an average of 2.5% for commercial deliveries. The ground residential
charge continues to be $1.00 over the commercial ground rate, with an additional
delivery area surcharge added to certain less accessible areas. In addition,
rates for UPS Next Day Air, UPS Next Day Air Saver and UPS 2nd Day Air increased
an average of 2.5%, while the rate for UPS 2nd Day Air A.M. decreased 2.2%. The
rate for UPS Next Day Air Early A.M. did not change. Rates for international
shipments originating in the United States did not increase for UPS Worldwide
Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International
Standard service. Rate changes for shipments originating outside the United
States have been made throughout the past year and vary by geographic market.
Delivery Service Options
UPS offers additional services such as Consignee Billing, Delivery
Confirmation and Call Tag Service to those customers who require customized
package distribution solutions. Consignee Billing was designed for customers who
receive large volumes of merchandise from a number of vendors. UPS bills these
consignee customers directly for their shipping charges, enabling the customer
to obtain tighter control over inbound transportation costs. Delivery
Confirmation provides automatic confirmation and weekly reports of deliveries
and is available throughout the United States and Puerto Rico. Immediate
confirmation is also available upon request. Call Tag Service provides prompt
pick-up and return of packages previously delivered by UPS from any address in
the 48 contiguous states.
Competition
UPS is the largest package distribution company in the world, in terms of
both revenue and volume. UPS offers a broad array of services in the package
delivery industry and therefore competes with many companies and services on a
local, regional, national and international basis. These competitors include the
postal services of the United States and other nations, various motor carriers,
express companies, freight forwarders, air couriers and others.
Competition is increasingly based on a carrier's ability to integrate its
distribution and information systems with its customers' systems to provide
unique transportation solutions at competitive prices. UPS relies on its vast
infrastructure and service portfolio to attract and maintain customers.
Regulation
Pursuant to the Federal Aviation Act of 1958, as amended, both the
Department of Transportation (the "DOT") and the Federal Aviation Administration
(the "FAA") regulate air transportation services.
The DOT's authority relates primarily to economic aspects of air
transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations or cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international
routes, fares, rates and practices and is authorized to investigate and take
action against discriminatory treatment of United States air carriers abroad.
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The FAA's authority relates primarily to safety aspects of air
transportation, including aircraft standards and maintenance, personnel and
ground facilities. UPS was granted an operating certificate by the FAA in 1988
that remains in effect so long as UPS meets the operational requirements of the
Federal Aviation Regulations.
The FAA has issued rules mandating repairs on all Boeing Company and
McDonnell Douglas Corporation aircraft that have completed a specified number of
flights and has also issued rules requiring a corrosion control program for
Boeing Company aircraft. Total expenditures by UPS under these programs for 1998
were approximately $16.4 million. The future cost of such repairs pursuant to
the programs may fluctuate.
Ground transportation of packages by UPS in the United States is subject to
the jurisdiction of the DOT with respect to the regulation of routes, and both
the jurisdiction of the DOT and the states with respect to the regulation of
safety, insurance and hazardous materials. UPS is subject to similar regulation
in many foreign jurisdictions.
Postal Rate Proceedings
The Postal Reorganization Act of 1970 (the "Act") created the Postal
Service as an independent establishment of the executive branch of the federal
government and vested the power to recommend domestic postal rates in a
regulatory body, the Postal Rate Commission (the "Commission"). UPS believes
that the Postal Service consistently attempts to set rates for its monopoly
services, particularly First Class letter mail, above the cost of providing such
services in order to use the excess revenues to subsidize its expedited, parcel,
international and other competitive services. Therefore, UPS participates in the
postal rate proceedings before the Commission in an attempt to secure fair
postal rates for competitive services.
On June 29, 1998, the Postal Service Board of Governors adopted, with minor
exceptions, the Commission's Recommended Decision in the general rate case filed
by the Postal Service in 1997. On July 13, 1998, UPS filed a notice of appeal
with the United States Court of Appeals for the District of Columbia claiming
the Commission erred in the treatment of air transportation costs associated
with the movement of parcel post packages in the state of Alaska and Priority
Mail's contribution to covering institutional (overhead) costs. The appeal is
pending.
Legislation has been proposed that would result in significant amendments
to the Act. If adopted, it would introduce a form of rate-cap regulation of
monopoly services, loosen regulation of competitive services and, for certain
matters, strengthen the powers of the Commission.
Environmental Regulation
The Clean Air Act Amendments of 1990 require a ten-year phase-in of clean-
fuel vehicles by certain fleets in urban areas with the worst air quality
problems. UPS began a project in 1989 using clean compressed natural gas ("CNG")
as a fuel in some package cars. By the end of 1998, more than 850 UPS package
cars were running on CNG in various cities. The EPA's final rules under the
Clean Air Act Amendments of 1990 established regulations governing the exemption
of clean fuel fleet vehicles from certain transportation control measures
("TCMs"). The regulations exempt clean fuel vehicles, such as UPS's CNG
vehicles, from urban TCMs, which include truck bans and time-of-day
restrictions. The regulations also permit the CNG vehicles to travel in high
occupancy vehicle lanes, provided they meet certain emission criteria.
All of the aircraft owned by UPS meet Stage III federal noise regulations.
For additional information regarding compliance with such regulations, see Item
2, "Properties--Aircraft."
Employees
As of December 31, 1998, the Company employed approximately 328,000
employees. Approximately 89,000 full-time and 116,000 part-time employees are
represented by various labor unions, primarily the International Brotherhood of
Teamsters ("IBT"). UPS and the IBT are parties to a five-year Master Agreement
which expires July 31, 2002. In addition, UPS employs approximately 2,100
pilots, represented by the Independent Pilots Association ("IPA"). UPS and the
IPA have an eight-year agreement that extends through 2003. The Company believes
that its relations with its employees are good.
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Executive Officers
Listed below is certain information relating to the executive officers and
management of UPS.
<TABLE>
<CAPTION>
Principal Occupation
and Employment During
Name and Office Age at Least the Last Five Years
--------------- --- ----------------------------
<S> <C> <C>
John W. Alden.................................... 57 Director (1988 to present), Vice Chairman (1996 to
Vice Chairman, Senior Vice President and present), Senior Vice President and Business
Director Development Group Manager (1986 to present)
John J. Beystehner............................... 47 Senior Vice President (1999 to present), Worldwide
Senior Vice President Sales Group Manager (1997 to present), Airline
Operations Manager (1994 to 1997), District Manager
(1992 to 1994), Legal and Regulatory Air Operations
Manager (1987 to 1992)
Robert J. Clanin................................. 55 Director (1996 to present), Senior Vice President,
Senior Vice President, Treasurer, Chief Treasurer and Chief Financial Officer (1994 to
Financial Officer and Director present), Finance Manager (1990 to 1994)
Calvin Darden.................................... 49 Senior Vice President and U.S. Operations Manager
Senior Vice President (1998 to present), Corporate Quality Manager (1995
to 1998), Region Manager (1993 to 1995), District
Manager (1991 to 1993)
John A. Duffy.................................... 52 Senior Vice President (1999 to present), Corporate
Senior Vice President Strategy Group Manager (1996 to present), Strategic
Operations Planning Group Manager (1994 to 1996),
International Marketing Manager (1993 to 1994),
District Manager (1989 to 1993)
Michael L. Eskew................................. 49 Director (1998 to present), Corporate Development Group Manager
Senior Vice President and Director (1999 to present), Senior Vice President (1996 to present),
Engineering Group Manager (1996 to present), Corporate Industrial
Engineering Manager (1993 to 1996), District Manager (1991 to 1993)
James P. Kelly................................... 55 Director (1991 to present), Chairman of the Board
Chairman of the Board, Chief Executive Officer and Chief Executive Officer (1997 to present), Vice
and Director Chairman (1996), Executive Vice President (1994 to
1996), Chief Operating Officer (1992 to 1996), U.S.
Operations Manager (1990 to 1992)
Kenneth W. Lacy.................................. 49 Senior Vice President and Chief Information Officer
Senior Vice President and Chief Information (1996 to present), Vice President-Information
Officer Services (1994 to 1996), Corporate Controller (1992
to 1994), Financial Manager (1989 to 1992)
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupation
and Employment During
Name and Office Age at Least the Last Five Years
--------------- --- ----------------------------
<S> <C> <C>
Christopher D. Mahoney........................... 51 Senior Vice President and U.S. Operations Manager
Senior Vice President (1998 to present), Region Manager (1988 to 1998)
Joseph R. Moderow................................ 50 Director (1988 to present), Senior Vice President
Senior Vice President, Secretary and Director and Secretary (1986 to present), Legal and Public
Affairs Group Manager (1989 to present)
Joseph M. Pyne................................... 51 Senior Vice President and Marketing Group Manager
Senior Vice President (1996 to present), Vice President-Marketing (1995
to 1996), National Marketing Planning Manager (1989
to 1995)
Charles L. Schaffer.............................. 53 Director (1992 to present), Chief Operating Officer
Senior Vice President, Chief Operating Officer (1998 to present), Senior Vice President (1990 to
and Director present), U.S. Operations Manager (1996 to 1998),
Engineering Group Manager (1990 to 1996)
Lea N. Soupata................................... 48 Director (1998 to present), Senior Vice President
Senior Vice President and Director and Human Resources Group Manager (1995 to
present), Vice President-Human Resources (1994 to
1995), District Manager (1990 to 1994)
Ronald G. Wallace................................ 54 Senior Vice President and President-International
Senior Vice President and Operations (1998 to present), Region Manager (1994
President-International Operations to 1998), District Manager (1991 to 1994)
Thomas H. Weidemeyer............................. 51 Director (1998 to present), Senior Vice President
Senior Vice President and Director (1994 to present), Transportation Group Manager
(1997 to present), Labor Relations Group Manager
(1997 to present), Airline Operations Manager (1990
to 1994)
</TABLE>
Each executive officer of UPS has been elected to serve until the next
meeting of the directors of UPS following the annual meeting of shareowners of
UPS.
Item 2. Properties
Operating Facilities
UPS's headquarters are owned and located in Atlanta, GA, and consist of
approximately 735,000 square feet.
The Company's principal U.S package operating facilities are owned and
located in Dallas, TX; Denver, CO; Earth City, MO; Grand Rapids, MI;
Jacksonville, FL; New York, NY; Palatine, IL; and Philadelphia, PA. These
operating facilities, having floor spaces which range from approximately 354,000
to 693,000 square feet, have central sorting facilities, operating hubs and
service centers for local operations. In addition, UPS has a 1.9 million square
foot operating facility near Chicago, IL, designed to streamline shipments
between East and West coast destinations.
UPS also owns approximately 730 operating facilities and leases
approximately 873 other operating facilities throughout the United States for
its package operations. The smaller of these facilities have vehicles and
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drivers stationed for the pickup of packages and facilities for the sorting,
transfer and delivery of packages. The larger of these facilities have
additional facilities for servicing UPS vehicles and equipment and employ
specialized mechanical installations for the sorting and handling of packages.
The Company also owns or leases other facilities that support its international
package and non-package operations. The Company believes its facilities are
adequate to support its current operations.
The Company's aircraft are operated in a hub and spokes pattern in the
United States. The Company's principal air hub in the United States is located
in Louisville, KY, with regional air hubs in Columbia, SC; Dallas, TX; Hartford,
CT; Ontario, CA; Philadelphia, PA and Rockford, IL. These hubs house facilities
for the sorting, transfer and delivery of packages. The Louisville, KY hub
handles the largest volume of packages for air delivery in the United States.
The Company's European air hub is located in Cologne, Germany, and its Asian-
Pacific air hub is in Taipei, Taiwan. A new automated sorting facility, "Hub
2000," is currently under construction in Louisville, KY and is expected to
commence partial operations in 2000. This new facility is expected to increase
UPS's hub capacity by over 40% in Louisville.
UPS's computer operations are consolidated in a 435,000 square foot leased
facility, the Ramapo Ridge facility, which is located on a 39-acre site in
Mahwah, NJ. UPS has leased this facility for an initial term ending in 2019 for
use as a data processing, telecommunications and operations facility. UPS also
owns a 160,000 square foot facility located on a 25-acre site in the Atlanta, GA
area, which serves as a backup to the main computer operations facility in New
Jersey. This facility provides certain production functions and backup capacity
in case a power outage or other disaster incapacitates the main data center. It
also helps the Company to meet certain communication needs.
Aircraft
UPS currently operates, either directly or by charter, a fleet of 536
aircraft. UPS's fleet as of December 31, 1998 consisted of the following
aircraft:
<TABLE>
<CAPTION>
Number Leased
Description Number Owned from Others
----------- ------------ -------------
<S> <C> <C>
McDonnell-Douglas DC-8-71....................................................... 23 0
McDonnell Douglas DC-8-73....................................................... 26 0
Boeing 727-100.................................................................. 51 0
Boeing 727-200.................................................................. 10 0
Boeing 747-100.................................................................. 12 0
Boeing 747-200.................................................................. 4 0
Boeing 757-200.................................................................. 64 9
Boeing 767-300.................................................................. 21 6
Other 0 310
--- ---
Total...................................................................... 211 325
</TABLE>
An inventory of spare engines and parts is maintained for each aircraft.
All of UPS's DC-8-71's, DC-8-73's, Boeing 727's, Boeing 747's, Boeing 757-
200's and Boeing 767-300's meet Stage III federal noise regulations. UPS
replaced the three engines on all Boeing 727-100 aircraft with new, quieter
engines. These re-engined Boeing 727-100's meet Stage III federal noise
regulations and allow UPS to operate at airports that have aircraft noise
restrictions. UPS has also completed engine modifications for each of its 10
Boeing 727-200 aircraft to achieve Stage III noise compliance. UPS became the
first major airline to successfully operate a 100% Stage III fleet more than
three years in advance of federal regulations.
During 1998, UPS took delivery of 2 Boeing 747-200, 3 Boeing 757-200 and 5
Boeing 767-300 aircraft. UPS also exercised options to purchase 10 Boeing 757-
200 aircraft that were previously accounted for under operating leases. UPS has
firm commitments to take delivery of 2 Boeing 757-200 and 3 Boeing 767-300
aircraft in 1999. UPS also has firm commitments to purchase 4 Airbus A300-600
aircraft during 2000, 26 Airbus A300-600 aircraft between 2001 and 2005, and has
options to purchase 30 Airbus A300-600 aircraft between 2002 and 2009.
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Vehicles
UPS operates a fleet of approximately 149,000 vehicles, ranging in size
from panel delivery cars to large tractors and trailers, including approximately
1,400 temperature-controlled trailers owned by Martrac and approximately 4,000
vehicles owned by UPS Truck Leasing.
UPS management believes that the above facilities, aircraft and vehicles
are adequate to support the Company's operations over the next year.
Item 3. Legal Proceedings
During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS") asserting
that it is liable for additional tax for the 1983 and 1984 tax years. The
Notice of Deficiency is based in large part on the theory that UPS is liable for
tax on income of Overseas Partners Ltd., a Bermuda company, which has reinsured
excess value package insurance purchased by UPS's customers from unrelated
insurers. The deficiency sought by the IRS relating to package insurance is
based on a number of theories, which the Company believes are inconsistent, and
ranges from $8 million to $35 million of tax, plus penalties and interest for
1984.
In August 1995, the Company filed a petition in the United States Tax Court
("Tax Court") in opposition to the Notice of Deficiency related to the 1983 and
1984 tax years. The matter was tried before the Tax Court in late 1997. Even
though the Tax Court has no scheduled date for its opinion to be rendered, the
Company does not anticipate a decision before mid-1999.
During the first quarter of 1999, the IRS issued two Notices of Deficiency
asserting that UPS is liable for additional tax for the 1985 through 1987 tax
years, and the 1988 through 1990 tax years. In all cases, the primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1983 through 1984 tax years. The additional
tax sought by the IRS relating to package insurance for these periods ranges,
based on alternative theories, from $115 million to $121 million for the 1985
through 1987 tax years, and from $131 million to $138 million for the 1988
through 1990 tax years, plus penalties and interest. The IRS has based their
assertions on the same theories included in the 1983-1984 Notice of Deficiency.
In addition to package insurance, the IRS has raised a number of other
issues relating to the timing of deductions; the characterization of expenses as
capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit
and the Research Tax Credit in the 1983 through 1990 tax years. These issues
total $32 million in tax for the 1983 and 1984 tax years, $88 million in tax for
the 1985 through 1987 tax years, and $245 million in tax for the 1988 through
1990 tax years. Penalties and interest are in addition to these amounts. The
majority of these adjustments would reverse in future years. The Company is
currently in the process of preparing petitions to the Tax Court for the 1985
through 1987 tax years and the 1988 through 1990 tax years. The IRS may take
positions similar to those described above for periods subsequent to 1990.
Management believes the eventual resolution of the matters raised by the IRS
will not result in a material adverse effect upon the financial condition of the
Company.
The Company is a defendant in various employment-related lawsuits. In one
of these actions, which alleges employment discrimination by the Company, class
action status has been granted, and the United States Equal Employment
Opportunity Commission has been granted the right to intervene. UPS is also a
defendant in various other lawsuits that arose in the normal course of business.
In the opinion of management, none of these cases is expected to have a material
adverse effect upon the financial condition of the Company.
Item 4. Submission Of Matters to a Vote of Security Holders
None.
9
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
UPS is authorized to issue 900,000,000 shares of common stock, $.10 par
value per share (the "Common Stock"), of which 558,650,086 were outstanding as
of February 28, 1999. UPS is also authorized to issue 200,000,000 shares of
preferred stock, without par value. No shares of preferred stock are issued or
outstanding.
Each share of UPS Common Stock is entitled to one vote in the election of
directors and other matters, except that, generally, any shareowner, or
shareowners acting as a group, who beneficially own more than 10% of the voting
stock are entitled to only one one-hundredth of a vote with respect to each vote
in excess of 10% of the voting power of the then outstanding shares of voting
stock. Holders have no preemptive or other right to subscribe to additional
shares. In the event of liquidation or dissolution, shareowners are entitled to
share ratably in the assets available after payment of all obligations. The
shares are not redeemable by UPS except through the Company's exercise of the
preferential right of purchase mentioned below and, in the case of stock subject
to the UPS Managers Stock Trust, as amended and restated, the UPS Employees
Stock Trust and the UPS Qualified Stock Ownership Plan and Trust, the Company's
right of purchase in the circumstances described therein.
UPS Common Stock is not listed on a national securities exchange or traded
in the organized over-the-counter market. The UPS Certificate of Incorporation
provides that no outstanding shares of UPS Common Stock entitled to vote
generally in the election of directors may be transferred to any other person,
except by bona fide gift or inheritance, unless the shares shall have first been
offered, by written notice, for sale to UPS at the same price and on the same
terms upon which they are to be offered to the proposed transferee.
UPS has the right, within 30 days after receipt of the notice, to purchase
all or a part of the shares at the price and on the terms offered. If it fails
to exercise or waives the right, the shareowner may, within a period of 20 days
thereafter, sell to the proposed transferee all, but not part, of the shares
that UPS elected not to purchase, for the price and on the terms described in
the offer. All transferees of shares hold their shares subject to the same
restrictions. Shares previously offered but not transferred within the 20 day
period remain subject to the initial restrictions. Shares may be pledged or
otherwise used for security purposes, but no transfer may be made upon a
foreclosure of the pledge until the shares have been offered to UPS at the price
and on the terms and conditions bid by the purchaser at the foreclosure.
UPS has been the principal purchaser of UPS stock, which it has used
primarily for awards under the UPS Managers Incentive Plan, the UPS 1991 Stock
Option Plan (the "1991 Plan"), the UPS 1996 Stock Option Plan (the "1996 Plan")
and the matching contribution of UPS stock under the UPS Qualified Stock
Ownership Plan (the "Plans"), and for sales under the UPS 1997 Managers Stock
Purchase Plan, the UPS 1997 Employee Stock Purchase Plan, and the UPS Qualified
Stock Ownership Plan. UPS notifies its shareowners periodically of its
willingness to purchase a limited number of shares at specified prices
determined by the Board of Directors.
In determining the share price, the Board considers a variety of factors,
including past and current earnings, earnings estimates, the ratio of UPS Common
Stock to debt of UPS, other factors affecting the business and long-range
prospects of UPS, and general economic conditions, as well as opinions furnished
from time to time by investment counselors acting as independent appraisers.
In its determination of the prices to be paid for UPS stock, the Board has
not followed any predetermined formula. It has considered a number of formulas
commonly used in the evaluation of securities of closely held and publicly held
companies, but its decisions have been based primarily on the judgment of the
Board of Directors as to the long-range prospects of UPS rather than what the
Board considers to be short-range trends relating to UPS or to the values of
securities generally. Thus, for example, the Board has not given substantial
weight to short-term variations in average price-earnings ratios of publicly
traded securities, which at times have been considerably higher, and at other
times considerably lower, than those at which UPS has offered to purchase its
shares. However, the Board's decision as to price does take into account
factors generally affecting the market prices of publicly traded securities, and
prolonged changes in those prices could have an effect on the prices offered by
UPS.
One factor in determining the prices at which securities trade in the
organized securities markets is that of supply and demand. When demand is high
in relation to the shares which investors seek to sell, prices tend to increase,
while prices tend to decrease when demand is low in relation to shares being
sold. To date, the UPS Board of Directors has not given significant weight to
supply-demand considerations in determining the prices to be
10
<PAGE>
paid by UPS for its shares. UPS has a need for some of the shares which it has
been able to acquire for purposes of awards under the Plans, and eligible
employees have purchased some of the other available shares.
UPS intends to continue its policy of purchasing shares when offered by
shareowners. However, there can be no assurance of continuation of that policy.
The feasibility of purchases by UPS and the price at which shares can be
purchased are both subject to the continued maintenance by UPS of satisfactory
earnings and financial condition. Hence, both the salability of UPS shares and
the price at which they can be sold would be adversely affected by a continuous
decline in UPS earnings or by unfavorable changes in financial position and
might be adversely affected by decisions of shareowners to sell considerably
more shares than the Board considers necessary for the ultimate purpose of
making awards under the Plans.
The prices at which UPS has published notices of its willingness to
purchase shares since January 1997 are as follows:
<TABLE>
<CAPTION>
1997
Dates Price
<S> <C>
January 1 to February 12 $29.25
February 13 to May 13 $29.75
May 14 to August 19 $30.50
August 20 to November 12 $30.00
November 13 to February 26, 1998 $30.75
</TABLE>
<TABLE>
<CAPTION>
1998
Dates Price
<S> <C>
February 27 to May 21 $32.00
May 22 to August 19 $34.00
August 20 to November 18 $37.00
November 19 to February 17, 1999 $40.00
</TABLE>
UPS, from time to time, has waived its right of first refusal to purchase
its shares in order to permit eligible employees to purchase shares at the same
price as UPS was willing to pay. The grant of waiver in these cases has been
subject to those needs. Persons who purchase shares in this manner are required
to deposit them in the UPS Managers Stock Trust or the UPS Employees Stock
Trust.
On February 18, 1999, UPS expressed its willingness to purchase shares at
$43.00 per share, which is still the price at the date of this report.
In February 1999, UPS distributed an aggregate of 6,354,858 shares of UPS
Common Stock, subject to the UPS Managers Stock Trust, under the UPS Managers
Incentive Plan to a total of 26,278 employees at a managerial or supervisory
level. In January 1998, it distributed an aggregate of 4,441,509 shares of UPS
Common Stock under that Plan to a total of 25,618 managerial or supervisory
employees. The UPS Managers Stock Trust and the Managers Incentive Plan have
been previously described in the UPS Registration Statement on Form 10 and in
the UPS Prospectus dated January 25, 1999, relating to the UPS Managers
Incentive Plan awards. Such distributions do not represent "sales" as defined
under the Securities Act of 1933, as amended (the "1933 Act"). However, the
shares awarded were nonetheless registered under the 1933 Act.
During 1998, 1,874,366 shares of UPS Common Stock were distributed to 2,568
management employees upon the exercise of stock options granted to them by UPS
under the 1991 Plan. On December 31, 1998, 91,900 active employees owned
approximately 183.8 million shares of UPS Common Stock. This included 64,994
non-management employees holding over 17.4 million shares. The offering to UPS
managers and supervisors has been previously described in a UPS Registration
Statement on Form S-8, which became effective in March 1997 and the offering to
non-management employees has been previously described in a UPS Registration
Statement on Form S-8, which also became effective in March 1997. In addition,
the offering in connection with the UPS Savings Plan has been previously
described in a UPS Registration Statement on Form S-8, which became effective in
November 1998. The shares issued upon exercise of the options and the shares
purchased pursuant to these offerings are
11
<PAGE>
subject to the UPS Managers Stock Trust, as amended and restated, the UPS
Employees Stock Trust or the UPS Qualified Stock Ownership Plan and Trust
(collectively, the "Trusts").
Shares of UPS Common Stock issued to employees under the Plans and most
other shares of UPS Common Stock owned by UPS employees are held subject to the
Trusts. First Union National Bank ("First Union"), serves as trustee under the
Trusts. The Trust agreements give UPS the right to purchase a member's shares
of UPS Common Stock that have been deposited in the Trusts at their fair market
value, as defined, when the member retires, dies or ceases to be an employee of
UPS, or when the member requests the withdrawal of shares from the Trust. Fair
market value is defined as the fair market value of the shares at the time of
the sale, or in the event of differences of opinion as to value, the average
price per share of all shares of UPS Common Stock sold during the 12 months
preceding the sale involved. If at the time a member ceases to be an employee of
UPS, and 1,000 or more shares are held for the benefit of such member and his or
her transferees under the Trusts, UPS may, beginning in June of the calendar
year next succeeding the year of termination of employment, purchase at any time
and from time to time a cumulative annual amount of up to 10% of the 1,000 or
more shares held for the benefit of the member and his or her transferees,
unless the member requests withdrawal of the shares from the Trust, whereupon
UPS may elect whether or not to purchase the shares within 60 days of the
request. If less than 1,000 shares are held for the benefit of a member and his
or her transferees under the Trusts, UPS may purchase all or part of the shares
beneficially owned at any time, subject to the member's right to request
withdrawal of the shares from the Trust, whereupon UPS may elect whether or not
to purchase the shares within 60 days of the request. UPS is also entitled to
purchase shares of UPS Common Stock held under the Trusts after receipt of a
request from the member to release the shares from the Trust and upon occurrence
of several other enumerated events. If UPS does not elect to purchase the shares
and does not pay for the shares within the prescribed periods, the member would
become entitled, upon request, to the delivery of the shares of UPS Common Stock
free and clear of the Trusts, unless the purchase period has been extended by
agreement of UPS and such member.
Members of the Trusts are entitled to the dividends on shares of UPS Common
Stock held for their accounts (except that stock dividends are added to the
shares held by the Trustee for the benefit of the individual members), to direct
the Trustee as to how the shares held for their benefit are to be voted and,
except holders under the UPS Qualified Stock Ownership Plan and Trust, to
request proxies from the Trustee to vote shares held for their accounts.
In January 1999, UPS paid a cash dividend of $0.45 a share. During the
fiscal year ended December 31, 1998, UPS paid a cash dividend of $0.35 a share
in January 1998 and $0.40 in June 1998. During the fiscal year ended December
31, 1997, UPS paid cash dividends of $0.35 a share in both January 1997 and May
1997.
The policy of the UPS Board of Directors is to declare dividends each year
out of current earnings. However, the declaration of future dividends is subject
to the discretion of the Board of Directors in light of all relevant facts,
including earnings, general business conditions and working capital
requirements. Certain loan agreements limit the amount which UPS may declare as
dividends and use for the repurchase of its Common Stock. The most restrictive
of these agreements limits the declaration of dividends, other than stock
dividends, and payments for the purchase of Common Stock to the extent that such
declarations and payments, together with all other payments made subsequent to
January 1, 1985 would exceed, in the aggregate, (i) $250,000,000, (ii) 66 2/3%
of net income, as defined in the agreement, and (iii) the net proceeds from the
issuance, sale or disposition of any shares of stock of UPS or any warrants or
other rights to purchase such stock subsequent to January 1, 1985. As of
December 31, 1998, UPS had approximately $2.2 billion not subject to these
restrictions. These limits do not materially restrict the declaration of
dividends.
As of February 28, 1999, there were 3,187 record holders of equity
securities of UPS. Saul & Co. is the record holder of all the shares of Common
Stock subject to the Trusts. As of February 28, 1999, there were 114,692
beneficial owners of shares of Common Stock subject to the Trusts.
12
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial data for each of the five
years in the period ended December 31, 1998. This financial data should be read
in conjunction with the Company's Consolidated Financial Statements,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other financial data appearing elsewhere in this Report.
<TABLE>
<CAPTION>
Selected Income Statement Data
- ------------------------------
Years Ended December 31,
(In millions except per share amounts) 1998 1997 1996 1995 1994
---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 24,788 $ 22,458 $ 22,368 $ 21,045 $ 19,576
Operating expenses (21,698) (20,760) (20,339) (19,251) (18,020)
Investment income 84 70 39 26 13
Interest expense (227) (187) (95) (77) (29)
Miscellaneous, net (45) (28) (63) (35) 35
Income taxes (1,161) (644) (764) (665) (632)
---------- ------------ ------------ ------------ -------------
Net income $ 1,741 $ 909 $ 1,146 $ 1,043 $ 943
========== ============ ============ ============ =============
Percent of revenue 7.0% 4.0% 5.1% 5.0% 4.8%
========== ============ ============ ============ =============
Per share amounts:
Basic earnings per share $ 3.18 $ 1.65 $ 2.06 $ 1.87 $ 1.68
Diluted earnings per share $ 3.14 $ 1.63 $ 2.03 $ 1.84 $ 1.66
========== ============ ============ ============ =============
Dividends per share $ .85 $ .70 $ .68 $ .64 $ .55
========== ============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data
- ---------------------------
December 31,
(In millions) 1998 1997 1996 1995 1994
--------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Working capital $ 1,708 $ 1,079 $ 1,097 $ 261 $ 120
========= ============ ============ ============ =============
Long-term debt $ 2,191 $ 2,583 $ 2,573 $ 1,729 $ 1,127
========= ============ ============ ============ =============
Total assets $ 17,067 $ 15,912 $ 14,954 $ 12,645 $ 11,182
========= ============ ============ ============ =============
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
1998 Compared to 1997
- ---------------------
For the year ended December 31, 1998, revenue increased by $2.33 billion,
or 10.4%, in comparison with the previous year. During the same period, U.S.
domestic package revenue totaled $20.65 billion, an increase of $1.782 billion,
or 9.4%, and international package revenue totaled $3.237 billion, an increase
of $303 million, or 10.3%. Non-package revenue totaled $901 million, an
increase of $245 million, or 37.3%.
The increase in U.S. domestic package revenue resulted from several
factors. Continued improvement in product mix combined with generally higher
yields have contributed to higher revenues. In addition, the increase also
results from the effect of volume losses from the International Brotherhood of
Teamsters ("IBT") strike, which occurred in August 1997. The IBT strike severely
limited U.S. domestic package operations and also curtailed international
operations. Excluding the period of the strike, average daily domestic volume
was 2.2% below prior year levels, in total, although domestic express volume
increased 4.0%.
13
<PAGE>
During the first quarter of 1998, rates for standard ground shipments were
increased an average of 3.6% for commercial deliveries, and the ground
residential premium increased from $.80 to $1.00 over the commercial ground
rate. In addition, rates for UPS Next Day Air, UPS 2nd Day Air and 3 Day Select
each increased approximately 3.3%. Rates for international shipments
originating in the United States did not increase for UPS Worldwide Express, UPS
Worldwide Expedited and UPS Standard Service to Canada. Rate changes for
shipments originating outside the United States have been made throughout the
past year and vary by geographic market.
The increase in international package revenue was primarily attributable to
a 10.5% increase in volume and the continued improvement in product mix. This
revenue increase was partially offset by the stronger U.S. dollar. Among the
geographic regions comprising international package operations, Europe was a
significant contributor to international revenue growth as a result of a 12.2%
volume increase and improved product mix. The increase in non-package revenue
was mainly driven by continued growth of the UPS Logistics Group.
Consolidated operating expenses increased by $938 million, or 4.5%, while
the operating ratio improved from 92.4 during 1997 to 87.5 during 1998.
Compensation and benefit expenses increased $1.057 billion, in part, due to
additional labor costs incurred in August 1998, which were not incurred during
the IBT strike in August 1997. Other operating expenses decreased $119 million,
which was mainly driven by lower fuel costs and the reduction of overhead costs.
Fuel prices during 1998 were lower than in 1997, and are subject to general
market fluctuations. The year-to-date operating ratio of 87.5 is consistent
with the improvements that have been reported during the first three quarters of
1998. These improvements result largely from the control of operating expense
growth, along with the effect of improved product yields. In addition,
international operations are continuing to improve as a result of higher volume,
improved product mix and better utilization of existing capacity.
Operating profit for the year increased $1.392 billion of which $1.245
billion is attributable to U.S. domestic package operations, $123 million to
international package operations and $24 million to non-package operations.
The U.S. domestic package operating profit increase to $2.899 billion can
be attributed to the following factors. Approximately $703 million of the
increase resulted from improvements in U.S. domestic yields, improved product
mix and overall containment of operating expense growth. The remaining $542
million of the increase is the change between August 1998 and August 1997, the
period in which the strike occurred.
International package operating profit amounted to $56 million, an
improvement of $123 million over the operating loss of the previous year. The
continuation of this favorable trend in international operations resulted
primarily from higher volume, improved product mix, lower fuel costs and better
utilization of existing capacity. A substantial portion of the improvement in
operating profit was due to the Europe region. Furthermore, despite the recent
economic problems in Asia, operating results associated with that region have
continued to improve, and UPS has been minimally affected by the decline in
Asian currency values. This is due, in part, to focusing on volume moving to
and from Asia where rates are generally denominated in or pegged to U.S.
dollars. In addition, $21 million of the $123 million increase is the change
between August 1998 and August 1997, the period in which the strike occurred.
Income before income taxes increased $1.349 billion for the reasons
discussed above. Net income increased by $832 million over the prior year.
Approximately $496 million of the improvement in net income is due primarily to
improved yields on U.S. domestic products, improved product mix, improved
international operating results and the overall containment of operating expense
growth. The remaining increase of $336 million resulted from the change in net
income between August 1998 and August 1997, the period in which the strike
occurred.
1997 Compared to 1996
- ---------------------
As previously reported, the International Brotherhood of Teamsters ("IBT"),
representing approximately 203,000 UPS employees, was on strike from August 4
through August 19, 1997. In addition, the Independent Pilots Association
("IPA"), which represents the majority of the Company's pilots, observed picket
lines in support of the IBT strike. The new collective bargaining agreement
negotiated in August of 1997 with the IBT was approved by a vote of the IBT
membership and extends through July 31, 2002. Further, the Company's collective
bargaining agreement with the IPA became amendable on January 1, 1996 and on
March 18, 1998, the Company reached an eight-year agreement with the IPA that
extends through 2003.
14
<PAGE>
The IBT strike severely limited U.S. domestic package operations during
August and also curtailed international operations. This resulted in a net loss
of $211 million for the month ended August 31, 1997 (compared to net income of
$113 million for the same month of the prior year), which had a significant
adverse effect on net income for the year ended December 31, 1997.
For the entire year of 1997, revenue increased by $90 million compared to
the prior year. U.S. domestic package revenue totaled $18.868 billion, a slight
decrease of $13 million; international package revenue totaled $2.934 billion, a
decrease of $55 million; and non-package revenue totaled $656 million, an
increase of $158 million.
U.S. domestic package revenue decreased primarily due to lower volume,
which was down 4.1% for the year due to the downtime from the strike, along with
volume levels that were slightly lower after the strike compared to the same
period in the prior year. The decline in volume was offset by higher yields.
The overall decrease in volume is inclusive of a 4.2% volume increase in higher
yielding express packages, the growth rate for which was also slowed as a result
of the strike. Although ground volume subsequent to the strike had not returned
to pre-strike levels by year-end, U.S. domestic package revenues improved by
$137 million, or 2.7%, for the fourth quarter of 1997 in comparison to the same
quarter in 1996. This improvement is mainly attributable to increased yields
and a 6.2% volume growth in express services.
During the first quarter of 1997, rates for standard ground shipments were
increased an average of 3.4% for commercial deliveries and 4.3% for residential
deliveries. Rates for UPS Next Day Air, UPS 2nd Day Air, and 3 Day Select each
increased approximately 3.9%.
Rates for international shipments originating in the United States were
increased 2.6% for UPS Worldwide Express and 4.9% for UPS Worldwide Expedited.
Rate changes for shipments originating outside the United States have been made
throughout the past year and vary by geographic market. Rates for UPS Standard
Service to Canada did not change.
International revenues decreased by $55 million as a result of the
strengthening of the U.S. dollar, particularly in the Europe region.
International package revenue totaled $806 million for the fourth quarter of
1997, an increase of $37 million, or 4.8%, compared to the fourth quarter of
1996. A continued strengthening of the U.S. dollar offset revenue gains from
volume increases of 13.5%.
For the year, operating expenses increased by $421 million, or 2.1%. A
combination of increased operating expenses along with decreased revenues from
the strike resulted in a deterioration of the operating ratio from 90.9 during
1996 to 92.4 during 1997. The operating ratio for the fourth quarter of 1997
improved to 89.6 as a result of improved revenue yields, productivity gains and
the impact of cost containment efforts.
Operating profit for the year decreased $331 million, or 16.3%, primarily
as a result of lower revenues due to the strike. However, operating profit
increased by $172 million, or 36.8%, for the fourth quarter of 1997 compared to
1996.
U.S. domestic package operating profit amounted to $1.654 billion, a
decrease of $527 million, or 24.2%, over the previous year. The decrease was a
result of lower revenues due to the strike. The international package operating
loss amounted to $67 million, an improvement of $214 million over the previous
year. This improvement was primarily due to cost reductions associated with the
Company's efforts to reduce unprofitable volume as well as related savings in
reducing payroll and other costs. While improvement in operating profit
occurred throughout all of the international geographic regions, Europe was a
significant contributor.
International package operating profit was $40 million for the fourth
quarter of 1997. This compares to an operating loss of $100 million for the
fourth quarter of 1996, for an improvement of $140 million.
Interest expense amounted to $187 million, an increase of $92 million over
the prior year. This increase is primarily attributable to interest costs
incurred on higher debt levels outstanding during 1997. In addition, investment
income increased by $31 million as a result of correspondingly higher cash and
cash equivalent balances.
Income before income taxes ("pre-tax income") decreased $357 million, or
18.7%, in comparison to the prior year for the reasons discussed above. Fourth
quarter pre-tax income improved by $189 million to $599 million in comparison to
the same quarter of the prior year.
15
<PAGE>
Net income decreased by $237 million, or 20.7%, over the prior year as a
result of the strike during the third quarter. However, substantial improvement
was made in the fourth quarter of 1997, with net income totaling $351 million,
compared to $247 million for the fourth quarter of 1996. This was primarily the
result of volume increases in higher yielding products, productivity gains, and
cost reductions in both international and domestic operations.
Liquidity and Capital Resources
UPS maintains a commercial paper program under which it is authorized to
borrow up to $2.0 billion. Approximately $112 million was outstanding as of
December 31, 1998.
In April 1998, UPS renegotiated and extended its two credit agreements with
a consortium of banks. These agreements provide revolving credit facilities of
$1.25 billion each with one expiring April 29, 1999, and the other April 30,
2003.
UPS also maintains a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, UPS may, from time to time, issue
notes denominated in a variety of currencies. There is currently $500 million
available under this program.
In January 1999, UPS filed a shelf registration with the SEC, under which
UPS may issue debt in the U.S. marketplace of up to $2.0 billion. There is
currently no debt issued under this shelf registration.
Management believes that these funds and borrowing programs, combined with
the Company's internally generated resources and other credit facilities, will
provide adequate sources of liquidity and capital resources to meet its expected
long-term needs for the operation of its business, including anticipated capital
expenditures of $1.6 billion in 1999, as well as commitments for aircraft
purchases through 2005.
During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS") asserting
that it is liable for additional tax for the 1983 and 1984 tax years. The
Notice of Deficiency is based in large part on the theory that UPS is liable for
tax on income of Overseas Partners Ltd., a Bermuda company, which has reinsured
excess value package insurance purchased by UPS's customers from unrelated
insurers. The deficiency sought by the IRS relating to package insurance is
based on a number of theories, which the Company believes are inconsistent, and
ranges from $8 million to $35 million of tax, plus penalties and interest for
1984.
In August 1995, the Company filed a petition in the United States Tax Court
("Tax Court") in opposition to the Notice of Deficiency related to the 1983 and
1984 tax years. The matter was tried before the Tax Court in late 1997. Even
though the Tax Court has no scheduled date for its opinion to be rendered, the
Company does not anticipate a decision before mid-1999.
During the first quarter of 1999, the IRS issued two Notices of Deficiency
asserting that UPS is liable for additional tax for the 1985 through 1987 tax
years, and the 1988 through 1990 tax years. In all cases, the primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1983 through 1984 tax years. The additional
tax sought by the IRS relating to package insurance for these periods ranges,
based on alternative theories, from $115 million to $121 million for the 1985
through 1987 tax years, and from $131 million to $138 million for the 1988
through 1990 tax years, plus penalties and interest. The IRS has based their
assertions on the same theories included in the 1983-1984 Notice of Deficiency.
In addition to package insurance, the IRS has raised a number of other
issues relating to the timing of deductions; the characterization of expenses as
capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit
and the Research Tax Credit in the 1983 through 1990 tax years. These issues
total $32 million in tax for the 1983 and 1984 tax years, $88 million in tax for
the 1985 through 1987 tax years, and $245 million in tax for the 1988 through
1990 tax years. Penalties and interest are in addition to these amounts. The
majority of these adjustments would reverse in future years. The Company is
currently in the process of preparing petitions to the Tax Court for the 1985
through 1987 tax years and the 1988 through 1990 tax years. The IRS may take
positions similar to those described above for periods subsequent to 1990.
Management believes the eventual resolution of the matters raised by the IRS
will not result in a material adverse effect upon the financial condition of the
Company.
16
<PAGE>
The Company is a defendant in various employment-related lawsuits. In one
of these actions, which alleges employment discrimination by the Company, class
action status has been granted, and the United States Equal Employment
Opportunity Commission has been granted the right to intervene. UPS is also a
defendant in various other lawsuits that arose in the normal course of business.
In the opinion of management, none of these cases is expected to have a material
adverse effect upon the financial condition of the Company.
Market Risk
The Company is exposed to a number of market risks in the ordinary course
of business. These risks, which include interest rate risk, foreign currency
exchange risk and commodity price risk, arise in the normal course of business
rather than from trading. Management has examined the Company's exposures to
these risks and has concluded that none of the Company's exposures in these
areas is material to fair values, cash flows or earnings. The Company has
engaged in several strategies to manage the foregoing market risks.
Indebtedness of the Company under its various financing arrangements
creates interest rate risk. In connection with each debt issuance and as a
result of continual monitoring of interest rates, the Company may enter into
interest rate swap agreements for purposes of reducing its borrowing costs.
For all foreign currency denominated borrowing and certain lease
transactions, the Company has simultaneously entered into currency exchange
agreements to lock in the price of the currency needed to pay the obligations
and to hedge the foreign currency exchange risk associated with such
transactions. The Company is exposed to other foreign currency exchange risks
in the ordinary course of its business operations due to the fact that the
Company's services are provided in more than 200 countries and collection of
revenues and payment of certain expenses may give rise to currency exposure.
The Company consumes significant quantities of gasoline, diesel fuel and
jet fuel in the ordinary course of its business and is therefore exposed to
commodity price risk associated with variations in the market price for
petroleum products. The Company manages this risk, in part, by purchasing
commodity forward contracts and options.
Future Accounting Changes
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which requires that certain costs to
develop or obtain computer software for internal-use be capitalized. The
Company adopted the new standard on January 1, 1999. Since the Company had
previously expensed all such costs, the change will result in lower expenses in
the initial year of adoption and is estimated to increase 1999 net income by
approximately $70 million to $90 million.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. The new statement is effective for fiscal years beginning
after June 15, 1999, with earlier adoption encouraged but not required. The
Company has not yet completed its analysis of the effects of adopting this
standard.
Impact of the Year 2000 Issue
Introduction. The term "year 2000 issue" is a general term used to
-------------
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000s" from dates in the
"1900s." These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field.
State of Readiness. In 1995, UPS created a Year 2000 Committee tasked with
-------------------
evaluating the year 2000 issue and taking appropriate action to address the
implications of the year 2000 issue for UPS. The Year 2000 Committee has
developed and is currently implementing a comprehensive initiative (the
"Initiative") to make its business critical information technology assets ("IT
assets") (including embedded microprocessor systems
17
<PAGE>
incorporated into computer hardware and related software) and business critical
non-IT assets (e.g., vehicles, facilities, equipment and their embedded
microprocessor systems) year 2000 ready. The Initiative covers the following
eight phases: (i) inventory of IT and non-IT assets, (ii) assessment of repair
requirements, (iii) repair of IT and non-IT assets, (iv) unit and system
integration testing of individual IT and non-IT assets to determine correct
manipulation of dates and date-related data, (v) certification by users that IT
and non-IT assets correctly handle dates and date-related data, (vi) selected
verification by UPS internal auditors that phases (i) through (v) were properly
completed for IT and non-IT assets, (vii) "end-to-end" testing of selected IT
and non-IT assets, both internally developed and vendor-provided, to determine
correct manipulation of dates and date-related data, and (viii) creation of
contingency plans in the event of year 2000 failures.
Since UPS believes that the majority of its business critical IT assets are
controlled by UPS's Information Services Group ("IS Group"), implementation of
the Initiative for these IT assets occurred first. Generally, an IT asset is
considered to be business critical by UPS if its failure would have a material
adverse effect on package movement, customer relations or UPS's financial
condition, liquidity or results of operations, or if other factors (including
regulatory requirements) require the characterization of the IT asset as
business critical. This group includes, for example, but is not limited to,
package tracking, billing, customer telephone service center, and UPS OnLine(R)
automation systems.
As of January 31, 1999, the first six phases of the Initiative had been
completed for approximately 82% of the IT assets which are controlled by the IS
Group. The completion of the first six phases for the balance of these assets
is expected by the end of the first quarter of 1999. The implementation of the
Initiative for non-IT assets and IT assets controlled by all business functions
other than the IS Group is in earlier phases. The completion of the first six
phases for the majority of these assets is expected by the end of the second
quarter of 1999.
UPS is also contacting suppliers who provide both critical IT assets and
other goods and services such as vehicles, fuel, packaging materials, and forms
to (1) evaluate their year 2000 compliance plans and state of readiness and (2)
determine whether a year 2000-related event will impede the ability of such
suppliers to continue to provide such goods and services as the year 2000 is
approached and reached. UPS has received assurances from the vast majority of
suppliers of business critical IT assets controlled by the IS Group that these
assets will correctly manipulate dates and date-related data as the year 2000 is
approached and reached. UPS is evaluating these assurances for their accuracy
and adequacy. UPS has sent letters to the majority of its suppliers of non-IT
assets and IT assets controlled by business functions other than the IS Group.
The responses received are being reviewed and evaluated. UPS plans to develop
contingency plans for any material supplier that does not provide an appropriate
response to UPS. As a general matter, UPS is vulnerable to significant
suppliers' inability to remedy their own year 2000 issues.
UPS also relies, both domestically and internationally, upon government
agencies (particularly the Federal Aviation Administration), utility companies,
telecommunication service companies and other service providers outside of UPS's
control. As part of the Initiative, UPS is involved with several national and
international associations to pursue common Year 2000 objectives. For example,
UPS has been and remains involved, through its participation in the
International Air Transport Association (IATA) and the Air Transport Association
of America (ATA), in a global and industry-wide effort to understand the year
2000 compliance status of airports, air traffic systems, customs clearance and
other U.S. and international government agencies, and common vendors and
suppliers. However, there is no assurance that suppliers, governmental
agencies, or other third parties will not suffer a year 2000 business
disruption. Such failures could have a material adverse affect on UPS's
financial condition, liquidity or results of operations.
In addition, UPS has retained an independent consultant ("Consultant") to
assess (1) whether the Initiative, if appropriately implemented, can result in
year 2000 readiness for UPS, and (2) UPS's progress against the Initiative. If
the Consultant determines that the Initiative will not adequately lead to year
2000 readiness, the Consultant will provide recommendations for appropriately
adjusting the Initiative. The Consultant will periodically review UPS's
progress and recommend any necessary adjustments.
Testing. As part of the Initiative, UPS maintains a testing program to
--------
determine whether its business critical IT and non-IT assets are year 2000
ready. UPS's testing program is conducted in three stages. The initial stage
("unit testing") consists of testing individual systems (units) for year 2000
readiness. Unit testing includes, for example, testing a particular application
to ensure that it correctly manipulates dates and date-related data and properly
operates in a year 2000 ready environment. Following successful completion of
unit testing, a system will
18
<PAGE>
move into stage two ("integration testing"). This stage includes testing between
systems units to ensure that this interface will correctly send and receive
date-related data. Stages one and two are included in phase four of the overall
Initiative. All business critical IT and non-IT assets are subject to the first
two testing stages. After successful completion of phases four and five of the
Initiative, UPS's testing program is subject to independent review and
verification by UPS internal auditors in conjunction with phase six of the
Initiative. Certain business critical IT and non-IT assets are also subject to
the third stage of UPS's testing program ("end-to-end testing"). UPS has begun
end-to-end testing and plans to complete substantially all such testing by the
end of the second quarter of 1999. In addition, UPS maintains a change control
process to ensure that remediation efforts have not adversely affected
functionality and to retest units or systems after changes where appropriate.
Certain of these testing methodologies are also applied to third party systems
that interface with UPS systems.
Costs to Address the Year 2000 Issue. As of December 31, 1998, UPS
-------------------------------------
estimates that it has spent approximately $50 million on implementation of the
Initiative with the majority of the work being performed by UPS employees. A
majority of these costs have been incurred in repairing software components.
UPS expects to spend an estimated additional $52 million to complete the
Initiative. These are management's best estimates and may be revised as
additional information becomes available. UPS is also incurring costs in
connection with the assessment and remediation of IT assets and non-IT assets
which are not business critical. Management believes that the costs associated
with such activities are significantly less than the costs of the Initiative.
The foregoing costs do not yet include all the costs of contingency plans
currently under development. UPS intends to fund all costs associated with its
year 2000 efforts from operations. While UPS has incurred an opportunity cost
for implementing the Initiative, thus possibly deferring potentially beneficial
information technology projects, UPS has not deferred any specific information
technology project as a result of the implementation of the Initiative.
Risks Presented by the Year 2000 Issue. The failure by UPS to
---------------------------------------
appropriately address a material year 2000 issue, or the failure by any third
parties who provide goods or services that are critical to UPS's business
activities to appropriately address their year 2000 issues, could have a
material adverse effect on UPS's financial condition, liquidity or results of
operations. To date, UPS has not identified any material IT or non-IT assets
critical to UPS operations that present a material risk of not being year 2000
ready or that cannot be replaced with a suitable alternative. However, as the
Initiative proceeds, it is possible that UPS may identify assets or third party
providers that do present a risk of a year 2000-related disruption. Although
there is inherent uncertainty in the year 2000 problem, UPS expects that the
Initiative will significantly reduce UPS's level of uncertainty about its year
2000 issues. At this point, UPS believes that its most reasonably likely worst
case scenario will result from challenges presented by year 2000 disruptions
experienced by third parties, such as suppliers, customers or government
agencies, including for example, but not limited to, international airports, air
traffic and customs systems, banking institutions, or utility service providers.
A significant disruption in services provided by such a third party could have a
material adverse impact on UPS's financial condition, liquidity or results of
operations.
Contingency Plans. The Initiative calls for the development of contingency
------------------
plans for UPS's at-risk business functions. UPS has established a Contingency
Plan Committee to monitor and address the development of contingency plans. The
Initiative calls for UPS to develop year 2000-specific contingency plans if the
results of testing identify a business function at risk of a year 2000 failure.
In addition, as a normal course of business, UPS maintains and deploys
contingency plans designed to address various other potential business
interruptions. These plans may be applicable to address the interruption of
support provided by third parties resulting from their failure to be year 2000
ready.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and Liquidity and Capital Resources, and other parts of
this Report, contain "forward-looking" statements about matters that are
inherently difficult to predict. Those statements include statements regarding
the intent, belief or current expectations of UPS and its management. Some of
the important factors that affect these statements have been described above as
each subject is discussed. Such forward-looking statements involve risks and
uncertainties that may affect future developments such as, for example, the
ability to deal with the year 2000 issue, including UPS's ability to discover
and correct potential year 2000 issues and the ability of third parties to
appropriately address their year 2000 issues. If the modifications and
conversions required to make UPS year 2000 ready are not made or are not
completed on a timely basis, the resulting problems could have a material
adverse effect on the Company's financial condition, liquidity or results of
operations.
19
<PAGE>
Items 7a: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable. See Item 7.
Item 8. Financial Statements and Supplementary Data
Financial Statements
The Financial Statements of UPS are filed together with this Report. See
the Index to Financial Statements on page F-1 for a list of the Financial
Statements filed herewith.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Directors of UPS is presented under the caption
"Election of Directors" in UPS's definitive Proxy Statement for the Annual
Meeting of Shareowners to be held on April 29, 1999, which was filed with the
Securities and Exchange Commission (the "SEC") on March 15, 1999, and is
incorporated herein by reference.
Information concerning the Company's executive officers can be found in
Part I, Item 1, of this Form 10-K under the caption "Executive Officers" in
accordance with Instruction 3 of Item 401(b) of Regulation S-K and General
Instruction G(3) of Form 10-K.
Item 11. Executive Compensation
Information in answer to Item 11 is presented under the caption
"Compensation of Executive Officers and Other Information" excluding the
information under the captions "Report of the Officer Compensation Committee on
Executive Compensation" and "Shareowner Return Performance Graph" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareowners to be
held on April 29, 1999, which was filed with the SEC on March 15, 1999, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in answer to Item 12 is presented under the caption "Stock
Ownership" in the Company's definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on April 29, 1999, which was filed with the SEC on March
15, 1999, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information in answer to Item 13 is presented under the captions "Certain
Business Relationships" and "Common Relationships with Overseas Partners Ltd."
in the Company's definitive Proxy Statement for the Annual
20
<PAGE>
Meeting of Shareowners to be held on April 29, 1999, which was filed with the
SEC on March 15, 1999, and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
See the Index to Financial Statements and Financial Statement Schedules on
page F-1 for a list of the Financial Statements filed herewith.
2. Financial Statement Schedules.
Not Applicable.
3. List of Exhibits.
See the Exhibit Index beginning on page E-1 for a list of the Exhibits
incorporated by reference herein or filed herewith.
(b) Reports on Form 8-K.
None.
(c) Exhibits required by Item 601 of Regulation S-K.
See the Exhibit Index beginning on page E-1 for a list of the Exhibits
incorporated by reference herein or filed herewith.
21
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Item 8 -- Financial Statements
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Independent Auditors' Report..................................................................... F-2
Consolidated balance sheets
-- December 31, 1998 and 1997.................................................................... F-3
Statements of consolidated income
-- Years ended December 31, 1998, 1997 and 1996.................................................. F-4
Statements of consolidated shareowners' equity
-- Years ended December 31, 1998, 1997 and 1996.................................................. F-5
Statements of consolidated cash flows
-- Years ended December 31, 1998, 1997 and 1996.................................................. F-6
Notes to consolidated financial statements....................................................... F-7
</TABLE>
F-1
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
United Parcel Service of America, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of United
Parcel Service of America, Inc., and its subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, shareowners'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of United Parcel Service of
America, Inc., and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 8, 1999
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
(In millions except per share amounts)
<TABLE>
<CAPTION>
December 31,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................ $ 1,240 $ 460
Marketable securities................................................................ 389 -
Accounts receivable.................................................................. 2,713 2,405
Prepaid employee benefit costs....................................................... 703 669
Materials, supplies and other prepaid expenses....................................... 380 417
Common stock held for stock plans.................................................... - 526
--------- -----------
Total Current Assets............................................................. 5,425 4,477
--------- -----------
Property, Plant and Equipment:
Vehicles............................................................................. 3,482 3,519
Aircraft (including aircraft under capitalized leases)............................... 7,739 6,771
Land................................................................................. 651 654
Buildings............................................................................ 1,478 1,433
Leasehold improvements............................................................... 1,803 1,734
Plant equipment...................................................................... 4,144 4,063
Construction-in-progress............................................................. 257 328
--------- -----------
19,554 18,502
Less accumulated depreciation and amortization....................................... 8,170 7,495
--------- -----------
11,384 11,007
Other Assets............................................................................ 258 428
--------- -----------
$17,067 $15,912
========= ===========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable ................................................................... $ 1,322 $ 1,207
Accrued wages and withholdings ..................................................... 1,092 1,194
Dividends payable.................................................................... 247 191
Deferred income taxes................................................................ 114 140
Current maturities of long-term debt................................................. 410 41
Other current liabilities............................................................ 532 625
--------- -----------
Total Current Liabilities........................................................ 3,717 3,398
--------- ---------
Long-Term Debt (including capitalized lease obligations)................................ 2,191 2,583
--------- --------
Accumulated Postretirement Benefit Obligation, Net...................................... 969 911
--------- --------
Deferred Taxes, Credits and Other Liabilities........................................... 3,017 2,933
--------- -----------
Shareowners' Equity:
Preferred stock, no par value, authorized 200,000,000 shares, none issued............ - -
Common stock, par value $.10 per share, authorized 900,000,000 shares, issued
559,000,000 and 562,000,000 in 1998 and 1997..................................... 56 56
Additional paid-in capital........................................................... 325 -
Retained earnings.................................................................... 7,280 6,112
Cumulative foreign currency adjustments.............................................. (62) (81)
Unrealized loss on marketable securities............................................. (1) -
--------- -----------
7,598 6,087
--------- -----------
Treasury stock, at cost (11,605,952 shares).......................................... (425) -
--------- -----------
7,173 6,087
--------- -----------
$17,067 $15,912
========= =========
Shareowners' Equity Per Share........................................................ $12.83 $10.83
========= ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
(In millions except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................................................... $24,788 $22,458 $22,368
------- ------- -------
Operating Expenses:
Compensation and benefits...................................... 14,346 13,289 13,326
Other.......................................................... 7,352 7,471 7,013
------- ------- -------
21,698 20,760 20,339
------- ------- -------
Operating Profit............................................... 3,090 1,698 2,029
------- ------- -------
Other Income and (Expense):
Investment income.............................................. 84 70 39
Interest expense............................................... (227) (187) (95)
Miscellaneous, net............................................. (45) (28) (63)
------- ------- -------
(188) (145) (119)
------- ------- -------
Income Before Income Taxes....................................... 2,902 1,553 1,910
Income Taxes..................................................... 1,161 644 764
------- ------- -------
Net Income..................................................... $ 1,741 $ 909 $ 1,146
======= ======= =======
Basic Earnings Per Share....................................... $ 3.18 $ 1.65 $ 2.06
======= ======= =======
Diluted Earnings Per Share..................................... $ 3.14 $ 1.63 $ 2.03
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
STATEMENTS OF CONSOLIDATED SHAREOWNERS' EQUITY
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
(In millions except per share amounts)
<TABLE>
<CAPTION>
Cumulative
Additional Foreign
Common Stock Paid-In Retained Currency
------------
Shares Amount Capital Earnings Adjustments
------------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996.................................... 570 $57 $ 76 $4,961 $ 57
Comprehensive income:
Net income........................................ - - - 1,146 -
Foreign currency adjustments...................... - - - - (36)
Comprehensive income................................... - - - - -
Dividends ($.68 per share)............................. - - - (379) -
Gain on issuance of common stock held for stock plans.. - - 33 - -
Exercise of stock options.............................. - - (14) - -
------------ ------- ---- ------ -----
Balance, December 31, 1996.................................. 570 57 95 5,728 21
Comprehensive income:
Net income........................................ - - - 909 -
Foreign currency adjustments...................... - - - - (102)
Comprehensive income................................... - - - - -
Dividends ($.70 per share)............................. - - - (385) -
Gain on issuance of common stock held for stock plans.. - - 27 - -
Exercise of stock options.............................. - - (26) - -
Constructive retirement of common stock................ (8) (1) (96) (140) -
------------ ------- ---- ------ -----
Balance, December 31, 1997.................................. 562 56 - 6,112 (81)
Comprehensive income:
Net income........................................ - - - 1,741 -
Foreign currency adjustments...................... - - - - 19
Unrealized loss on marketable securities.......... - - - - -
Comprehensive income...................................
Dividends ($.85 per share)............................. - - - (466) -
Gain on issuance of common stock held for stock plans.. - - 70 - -
Exercise of stock options.............................. - - (8) (17) -
Retirement of common stock............................. (3) - - (90) -
Reclassification of common stock held for stock plans.. - - - - -
Managers Incentive Plan award to be distributed in
common stock.................................... - - 263 - -
------------ ------- ---- ------ -----
Balance, December 31, 1998.................................. 559 $56 $325 $7,280 $ (62
============ ======= ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Loss on Total
Marketalbe Treasury Shareowners'
Securities Stock at Cost Equity
----------- -------------- --------
<S> <C> <C> <C>
Balance, January 1, 1996.................................... $ - $ - $5,151
Comprehensive income:
Net income........................................ - - 1,146
Foreign currency adjustments...................... - - (36)
------
Comprehensive income................................... - - 1,110
------
Dividends ($.68 per share)............................. - - (379)
Gain on issuance of common stock held for stock plans.. - - 33
Exercise of stock options.............................. - - (14)
---------- ------------- ------
Balance, December 31, 1996.................................. - - 5,901
Comprehensive income:
Net income........................................ - - 909
Foreign currency adjustments...................... - - (102)
------
Comprehensive income................................... - - 807
------
Dividends ($.70 per share)............................. - - (385)
Gain on issuance of common stock held for stock plans.. - - 27
Exercise of stock options.............................. - - (26)
Constructive retirement of common stock................ - - (237)
---------- ------------- ------
Balance, December 31, 1997.................................. - - 6,087
Comprehensive income:
Net income........................................ - - 1,741
Foreign currency adjustments...................... - - 19
Unrealized loss on marketable securities.......... (1) - (1)
------
Comprehensive income................................... 1,759
------
Dividends ($.85 per share)............................. - - (466)
Gain on issuance of common stock held for stock plans.. - - 70
Exercise of stock options.............................. - - (25)
Retirement of common stock............................. - - (90)
Reclassification of common stock held for stock plans.. - (425) (425)
Managers Incentive Plan award to be distributed in
common stock.................................... - - 263
---------- ------------- ------
Balance, December 31, 1998.................................. $(1) $(425) $7,173
========== ============= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
(In millions)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 1,741 $ 909 $ 1,146
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization.................................................. 1,112 1,063 964
Postretirement benefits........................................................ 58 70 78
Deferred taxes, credits and other.............................................. 23 406 479
Changes in assets and liabilities:
Accounts receivable.......................................................... (308) (64) (416)
Prepaid employee benefit costs............................................... (34) (268) (116)
Materials, supplies and other prepaid expenses............................... 37 164 (196)
Accounts payable............................................................. 115 52 18
Accrued wages and withholdings............................................... 161 (7) 74
Dividends payable............................................................ 56 (3) 16
Other current liabilities.................................................... (93) 184 4
------- ------- -------
Net cash from operating activities........................................ 2,868 2,506 2,051
------- ------- -------
Cash flows from investing activities:
Capital expenditures.............................................................. (1,645) (1,984) (2,333)
Disposals of property, plant and equipment........................................ 216 111 127
Purchases of marketable securities................................................ (390) - -
Other asset receipts (payments)................................................... 164 46 (60)
------- ------- -------
Net cash (used in) investing activities...................................... (1,655) (1,827) (2,266)
------- ------- -------
Cash flows from financing activities:
Proceeds from borrowings.......................................................... 287 2,097 1,345
Repayments of borrowings.......................................................... (310) (2,065) (484)
Purchases of common stock......................................................... (774) (719) (650)
Issuances of common stock pursuant to stock awards and employee
stock purchase plans........................................................... 785 487 532
Dividends......................................................................... (466) (385) (379)
Other transactions................................................................ 45 1 19
------- ------- -------
Net cash from (used in) financing activities................................. (433) (584) 383
------- ------- -------
Effect of exchange rate changes on cash............................................. - (27) 13
------- ------- -------
Net increase in cash and cash equivalents........................................... 780 68 181
Cash and cash equivalents:
Beginning of year................................................................. 460 392 211
------- ------- -------
End of year....................................................................... $ 1,240 $ 460 $ 392
======= ======= =======
Cash paid during the period for:
Interest, net of amount capitalized............................................... $ 298 $ 130 $ 50
======= ======= =======
Income taxes...................................................................... $ 1,181 $ 319 $ 484
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statements and Business Activities
The accompanying consolidated financial statements include the accounts of
United Parcel Service of America, Inc., and all of its subsidiaries
(collectively "UPS" or the "Company"). All material intercompany balances and
transactions have been eliminated.
UPS concentrates its operations in the field of transportation services,
primarily domestic and international letter and package delivery. Revenue is
recognized upon delivery of a letter or package.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
As of December 31, 1998, the Company had approximately 202,000 employees
(62% of total employees) employed under collective bargaining agreements with
various locals of the International Brotherhood of Teamsters. These agreements
expire on July 31, 2002. In addition, the majority of the Company's pilots are
employed under a collective bargaining agreement with the Independent Pilots
Association ("IPA"), which becomes amendable January 1, 2004.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments (including
investments in debt securities and variable rate preferred stocks of $936 and
$207 million at December 31, 1998 and 1997, respectively) that are readily
convertible into cash. The carrying amount approximates fair value because of
the short-term maturity of these instruments.
Marketable Securities
Marketable securities are classified as available-for-sale and are carried
at fair value, with related unrealized gains and losses reported as other
comprehensive income and as a separate component of shareowners' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income, along with interest and dividends. The cost of securities sold is based
on the specific identification method; realized gains and losses resulting from
such sales are included in investment income.
Common Stock Held for Stock Plans
Prior to December 31, 1998, UPS accounted for its common stock held for
awards and distributions under various UPS stock and benefit plans as a current
asset. Common stock held in excess of current requirements was constructively
retired and accounted for as a reduction in Shareowners' Equity.
As a result of a change in position by the Securities and Exchange
Commission ("SEC") as well as a change by the Financial Accounting Standards
Board ("FASB"), UPS has reclassified its Common Stock Held for Stock Plans from
current assets to Treasury Stock, a separate component of Shareowners' Equity.
In 1998, 3 million shares in excess of current requirements were retired and 18
million shares previously constructively retired were also retired.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation (including
amortization) is provided by the straight-line method over the estimated useful
lives of the assets, which are as follows: Vehicles -- 9 years; Aircraft -- 12
to 20 years; Buildings -- 20 to 40 years; Leasehold Improvements -- lives of
leases; Plant Equipment -- 5 to 81/3 years.
Costs in Excess of Net Assets Acquired
Costs of purchased businesses in excess of net assets acquired are
amortized over a 10-year period using the straight-line method.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
Income Taxes
Income taxes are accounted for under FASB Statement No. 109, ''Accounting
for Income Taxes'' (''FAS 109''). FAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, FAS 109 generally considers all expected future events other than
proposed changes in the tax law or rates.
Capitalized Interest
Interest incurred during the construction period of certain property, plant
and equipment is capitalized until the underlying assets are placed in service,
at which time amortization of the capitalized interest begins, straight-line,
over the estimated useful lives of the related assets. Capitalized interest was
$27, $43 and $53 million for 1998, 1997 and 1996, respectively.
Derivative Instruments
UPS has entered into interest rate swap agreements, cross-currency interest
rate swap agreements and forward currency contracts. All of these agreements
relate to the Company's long-term debt and are specifically matched to the
underlying cash flows. They have been entered into for the purposes of reducing
UPS's borrowing costs and to protect UPS against adverse changes in foreign
currency exchange rates. Any periodic settlement payments are accrued monthly,
as either a charge or credit to expense, and are not material to net income.
Based on estimates provided by third party investment bankers, the Company has
determined that the fair value of these agreements is not material to its
financial statements.
The Company also purchases options to reduce the impact of changes in
foreign currency rates on its foreign currency purchases and purchases options
and forward contracts to moderate the impact of price increases in the cost of
crude oil on fuel expense. The forward contracts and options are adjusted to
fair value at period end based on market quotes and are not material to the
Company's financial statements.
The Company does not utilize derivatives for trading or other speculative
purposes. UPS is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, UPS does not
anticipate nonperformance by the counterparties. UPS is exposed to market risk
based upon changes in interest rates, foreign currency exchange rates and fuel
prices.
Stock Option Plans
UPS has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options. Under APB 25,
compensation expense is generally not recognized when both the exercise price is
the same as the market price and the number of shares to be issued is set on the
date the employee stock option is granted. Since UPS employee stock options are
granted on this basis, the Company does not recognize compensation expense for
grants under its plans.
Segment Information
Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which changes the method used by the Company to report information about
its operating segments. Information for 1997 and 1996 has been restated in order
to conform to the 1998 presentation. FAS 131 establishes standards to be used by
enterprises to identify and report information about operating segments and for
related disclosures about products and services, geographic areas and major
customers. The adoption of FAS 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information
contained in Note 10.
Changes in Presentation
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
2. LONG-TERM DEBT AND COMMITMENTS
Long-term debt, as of December 31, consists of the following (in millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
8 3/8% debentures, due April 1, 2020 (i).......................................................... $ 424 $ 700
8 3/8% debentures, due April 1, 2030 (i).......................................................... 276 -
Commercial paper (ii)............................................................................. 112 98
Industrial development bonds, Philadelphia Airport facilities, due December 1, 2015 (iii)......... 100 100
Capitalized lease obligations (iv)................................................................ 598 633
5.5% Eurobond notes, due January 4, 1999.......................................................... 200 201
3.25% 200 million Swiss Franc notes, due October 22, 1999......................................... 166 166
6.875% 100 million Pound Sterling notes, due February 25, 2000.................................... 166 166
6.625% EuroNotes, due April 25, 2001.............................................................. 200 200
6.25% EuroNotes, due July 7, 2000................................................................. 301 298
Installment notes, mortgages and bonds at various rates from 6.0% to 8.6%........................ 58 62
------ ------
2,601 2,624
Less current maturities........................................................................... (410) (41)
------ ------
$2,191 $2,583
====== ======
</TABLE>
(i) On January 22, 1998, the Company exchanged $276 million of the original
$700 million debentures for new debentures of equal principal with a maturity of
April 1, 2030. The new debentures have the same interest rate as the 8 3/8%
debentures due 2020 until April 1, 2020, and, thereafter, the interest rate will
be 7.62% for the final 10 years. The new 2030 debentures are redeemable in
whole or in part at the option of the Company at any time. The redemption price
is equal to the greater of 100% of the principal amount and accrued interest or
the sum of the present values of the remaining scheduled payouts of principal
and interest thereon discounted to the date of redemption at a benchmark
treasury yield plus five basis points plus accrued interest. The remaining $424
million of 2020 debentures are not subject to redemption prior to maturity.
Interest is payable semiannually on the first of April and October for both
debentures and neither debenture is subject to sinking fund requirements.
(ii) The weighted average interest rate on the commercial paper outstanding as
of December 31, 1998 and 1997, was 5.1% and 5.7%, respectively. The commercial
paper has been classified as long-term debt in accordance with the Company's
intention and ability to refinance such obligations on a long-term basis under
its revolving credit facilities. However, the amount of commercial paper
outstanding in 1999 is expected to fluctuate. UPS is authorized to borrow up to
$2.0 billion under this program as of December 31, 1998.
(iii) The industrial development bonds bear interest at either a daily,
variable or fixed rate. The average interest rates for 1998 and 1997 were 3.3%
and 3.5%, respectively.
(iv) UPS has capitalized lease obligations for certain aircraft which are
included in Property, Plant and Equipment at December 31 as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Aircraft................................................................................. $ 614 $ 614
Accumulated amortization................................................................. (38) (16)
----- -----
$ 576 $ 598
===== =====
</TABLE>
The aggregate annual principal payments for the next five years, excluding
commercial paper and capitalized leases, are (in millions): 1999 -- $371; 2000 -
- - $471; 2001 -- $203; 2002 -- $2; and 2003 -- $2.
Based on the borrowing rates currently available to the Company for long-term
debt with similar terms and maturities, the fair value of long-term debt,
including current maturities, is approximately $2.8 billion as of December 31,
1998 and 1997.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
UPS leases certain aircraft, facilities, equipment and vehicles under
operating leases which expire at various dates through 2034. Total aggregate
minimum lease payments under capitalized leases and under operating leases are
as follows (in millions):
<TABLE>
<CAPTION>
Year Capitalized Leases Operating
Leases
<S> <C> <C>
1999............................................................... $ 67 $ 211
2000............................................................... 67 146
2001............................................................... 67 115
2002............................................................... 67 94
2003............................................................... 67 77
After 2003......................................................... 526 477
----- ------
Total minimum lease payments....................................... 861 $1,120
======
Less imputed interest.............................................. (263)
-----
Present value of minimum capitalized lease payments................ 598
Less current portion............................................... (39)
-----
Long-term capitalized lease obligations............................ $ 559
=====
</TABLE>
As of December 31, 1998, UPS has outstanding letters of credit totaling
approximately $1.2 billion issued in connection with routine business
requirements.
As of December 31, 1998, UPS has commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $2.6 billion,
with the following amounts expected to be spent during the next five years (in
millions): 1999 -- $649; 2000 -- $295; 2001 -- $436; 2002 -- $383; and 2003 --
$393.
UPS maintains two credit agreements with a consortium of banks which provide
revolving credit facilities of $1.25 billion each, with one expiring April 29,
1999, and the other April 30, 2003. At December 31, 1998, there were no
outstanding borrowings under these facilities.
UPS also maintains a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, UPS may, from time to time, issue
notes denominated in a variety of currencies. There is currently $500 million
available under this program.
In January 1999, UPS filed a shelf registration with the SEC, under which UPS
may issue debt in the U.S. marketplace of up to $2.0 billion. There is
currently no debt issued under this shelf registration.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share - net income......... $1,741 $ 909 $1,146
====== ===== ======
Denominator:
Weighted-average shares............................................... 545 551 555
Contingent shares - Managers Incentive Plan........................... 2 1 2
------ ----- ------
Denominator for basic earnings per share................................ 547 552 557
Effect of dilutive securities:
Additional contingent shares - Managers Incentive Plan................ 4 4 4
Stock option plans.................................................... 3 2 3
------ ----- ------
Denominator for diluted earnings per share.............................. 554 558 564
====== ===== ======
Basic earnings per share................................................ $ 3.18 $1.65 $ 2.06
====== ===== ======
Diluted earnings per share.............................................. $ 3.14 $1.63 $ 2.03
====== ===== ======
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
4. LEGAL PROCEEDINGS
During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS") asserting
that it is liable for additional tax for the 1983 and 1984 tax years. The
Notice of Deficiency is based in large part on the theory that UPS is liable for
tax on income of Overseas Partners Ltd., a Bermuda company, which has reinsured
excess value package insurance purchased by UPS's customers from unrelated
insurers. The deficiency sought by the IRS relating to package insurance is
based on a number of theories, which the Company believes are inconsistent, and
ranges from $8 million to $35 million of tax, plus penalties and interest for
1984.
In August 1995, the Company filed a petition in the United States Tax Court
("Tax Court") in opposition to the Notice of Deficiency related to the 1983 and
1984 tax years. The matter was tried before the Tax Court in late 1997. Even
though the Tax Court has no scheduled date for its opinion to be rendered, the
Company does not anticipate a decision before mid-1999.
During the first quarter of 1999, the IRS issued two Notices of Deficiency
asserting that UPS is liable for additional tax for the 1985 through 1987 tax
years, and the 1988 through 1990 tax years. In all cases, the primary assertions
by the IRS relate to the reinsurance of excess value package insurance, the
issue raised for the 1983 through 1984 tax years. The additional tax sought by
the IRS relating to package insurance for these periods ranges, based on
alternative theories, from $115 million to $121 million for the 1985 through
1987 tax years, and from $131 million to $138 million for the 1988 through 1990
tax years, plus penalties and interest. The IRS has based their assertions on
the same theories included in the 1983-1984 Notice of Deficiency.
In addition to package insurance, the IRS has raised a number of other
issues relating to the timing of deductions; the characterization of expenses as
capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit
and the Research Tax Credit in the 1983 through 1990 tax years. These issues
total $32 million in tax for the 1983 and 1984 tax years, $88 million in tax for
the 1985 through 1987 tax years, and $245 million in tax for the 1988 through
1990 tax years. Penalties and interest are in addition to these amounts. The
majority of these adjustments would reverse in future years. The Company is
currently in the process of preparing petitions to the Tax Court for the 1985
through 1987 tax years and the 1988 through 1990 tax years. The IRS may take
positions similar to those described above for periods subsequent to 1990.
Management believes the eventual resolution of the matters raised by the IRS
will not result in a material adverse effect upon the financial condition of the
Company.
The Company is a defendant in various employment-related lawsuits. In one
of these actions, which alleges employment discrimination by the Company, class
action status has been granted, and the United States Equal Employment
Opportunity Commission has been granted the right to intervene. UPS is also a
defendant in various other lawsuits that arose in the normal course of business.
In the opinion of management, none of these cases is expected to have a material
adverse effect upon the financial condition of the Company.
5. EMPLOYEE BENEFIT PLANS
UPS maintains several defined benefit plans (the ''Plans''). The Plans are
noncontributory and include all employees who meet certain minimum age and years
of service requirements, except those employees covered by certain multi-
employer plans provided for under collective bargaining agreements.
The Plans provide for retirement benefits based on either service credits
or average compensation levels earned by employees prior to retirement. The
Plans' assets consist primarily of publicly traded stocks and bonds and include
approximately 13.5 million and 13.3 million shares of UPS common stock at
December 31, 1998 and 1997, respectively. UPS's funding policy is consistent
with relevant federal tax regulations. Accordingly, UPS contributes amounts
deductible for federal income tax purposes.
UPS sponsors postretirement medical plans that provide health care benefits
to its retirees who meet certain eligibility requirements and who are not
otherwise covered by multi-employer plans. Generally, this includes employees
with at least 10 years of service who have reached age 55 and employees who are
eligible for postretirement medical benefits from a Company-sponsored plan
pursuant to collective bargaining. The Company has the right to modify or
terminate certain of these plans. In many cases, these benefits have been
provided to
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
retirees on a noncontributory basis; however, in certain cases, employees are
required to contribute towards the cost of the coverage.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets and a statement of funded status as
of September 30, with certain amounts included in the balance sheet as of
December 31 (in millions):
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Medical Benefits
------------------------------ --------------------------
1998 1997 1998 1997
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year.................. $3,311 $2,678 $1,139 $1,096
Service cost................................................. 147 108 39 41
Interest cost................................................ 260 220 86 89
Plan amendments.............................................. 60 98 (24) (29)
Actuarial (gain) loss........................................ 518 296 18 (17)
Gross benefits paid.......................................... (93) (89) (46) (41)
------ ------ ------ ------
Net benefit obligation at end of year........................ 4,203 3,311 1,212 1,139
------ ------ ------ ------
Change in Plan Assets
Fair value of plan assets at October 1, 1997................. 3,856 2,768 291 237
Actual return on plan assets................................. 53 768 3 53
Employer contributions....................................... 114 409 42 42
Gross benefits paid.......................................... (93) (89) (46) (41)
------ ------ ------ ------
Fair value of plan assets at September 30, 1998.............. 3,930 3,856 290 291
------ ------ ------ ------
Funded status at end of year................................. (273) 545 (922) (848)
Unrecognized net actuarial (gain) loss....................... 280 (495) (24) (65)
Unrecognized prior service cost.............................. 305 224 (23) 2
Unrecognized net transition obligation....................... 19 71 - -
------ ------ ------ ------
Net asset (liability) recorded at end of year................ $ 331 $ 345 $ (969) $ (911)
====== ====== ====== ======
</TABLE>
Net periodic benefit cost for the years ended December 31 included the
following components (in millions):
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Medical Benefits
----------------------- -----------------------
1998 1997 1996 1998 1997 1996
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost...................................... $147 $108 $109 $39 $41 $37
Interest cost..................................... 260 220 203 86 89 82
Expected return on assets......................... (310) (240) (202) (26) (21) (18)
Amortization of:
Transition obligation.......................... 8 4 4 - - -
Prior service cost............................. 23 11 11 1 3 3
Actuarial loss................................. - - 2 - - 1
---- ---- ---- ---- ---- ----
Net periodic benefit cost......................... $128 $103 $127 $100 $112 $105
==== ==== ==== ==== ==== ====
</TABLE>
The significant assumptions used in the measurement of the Company's benefit
obligations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expected long-term rate of earnings on plan assets .................................... 9.5% 9.5% 9.5%
Discount rate ......................................................................... 6.75% 7.5% 8.0%
Rate of increase in future compensation levels for pension benefits ................... 4.0% 4.0% 4.0%
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
Future postretirement medical benefit costs were forecasted assuming an
initial annual increase of 6.0% for pre-65 medical costs and an increase of 5.0%
for post-65 medical costs, decreasing to 5.0% for pre-65 and 4.0% for post-65 by
the year 2000 and with consistent annual increases at those ultimate levels
thereafter.
Assumed health care cost trends have a significant effect on the amounts
reported for the health care plans. A one-percent change in assumed health care
cost trend rates would have the following effects (in millions):
<TABLE>
<CAPTION>
1% Increase 1% Decrease
---------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost components....................... $10 $(10)
Effect on postretirement benefit obligation................................... $94 $(94)
</TABLE>
UPS also contributes to several multi-employer pension plans for which the
above information is not determinable. Amounts charged to operations for pension
contributions to these multi-employer plans were $757, $597 and $652 million
during 1998, 1997 and 1996, respectively.
UPS also contributes to several multi-employer health and welfare plans which
cover both active and retired employees for which the above information is not
determinable. Amounts charged to operations for contributions to multi-employer
health and welfare plans were $458, $448 and $441 million during 1998, 1997 and
1996, respectively.
UPS also sponsors a defined contribution plan for all employees not covered
under collective bargaining agreements. Beginning January 1, 1998, the Company
matched, in shares of UPS common stock, a portion of the participating
employees' contributions. Matching contributions charged to expense were $49
million for 1998.
6. MANAGEMENT INCENTIVE PLANS
UPS maintains the UPS Managers Incentive Plan. Persons earning the right to
receive awards are determined annually by either the Officer Compensation
Committee or the Salary Committee of the UPS Board of Directors. Awards consist
primarily of UPS common stock and cash equivalent to the tax withholdings on
such awards. The total of all such awards is limited to 15% of consolidated
income before income taxes for the 12-month period ending each September 30,
exclusive of gains and losses from the sale of real estate and stock of
subsidiaries and the effect of certain other nonrecurring transactions or
accounting changes. Amounts charged to operations were $448, $244 and $324
million during 1998, 1997 and 1996, respectively.
As a result of the reclassification of Common Stock Held for Stock Plans
discussed in Note 1, the Company recorded $263 million of the $448 million 1998
Managers Incentive Plan award that was distributed in UPS common stock in
February 1999, as Additional Paid-In Capital.
UPS maintains fixed stock option plans under which options are granted to
purchase shares of UPS common stock at the current price of UPS shares as
determined by the Board of Directors on the date of option grant. UPS applies
APB Opinion 25 and related Interpretations in accounting for these plans.
Accordingly, no compensation expense has been recorded for the grant of stock
options during 1998, 1997 or 1996. Pro forma information regarding net income
and earnings per share is required by Statement of Financial Accounting
Standards No. 123 ("FAS 123") and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. For purposes of pro forma disclosures, the estimated fair value of
the options granted in 1998, 1997 and 1996 is amortized to expense over the
vesting period of the options.
The pro forma information is as follows (in millions except per share
amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C> <C>
Net income................................................................ As reported $1,741 $ 909 $1,146
Pro forma $1,734 $ 904 $1,143
Basic earnings per share.................................................. As reported $ 3.18 $1.65 $ 2.06
Pro forma $ 3.17 $1.64 $ 2.05
Diluted earnings per share................................................ As reported $ 3.14 $1.63 $ 2.03
Pro forma $ 3.13 $1.62 $ 2.03
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
The weighted average fair value of options granted during 1998, 1997 and
1996 was $3.60, $5.24 and $3.80, respectively, using the minimum value method
for nonpublic entities specified by FAS 123. The assumptions used, by year, are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Semiannual dividend per share............................................................. $0.45 $0.35 $0.35
Risk-free interest rate................................................................... 5.56% 6.73% 6.05%
Expected life in years.................................................................... 5 5 5
</TABLE>
Persons earning the right to receive stock options are determined each year
by either the Officer Compensation Committee or the Salary Committee of the UPS
Board of Directors. Options covering a total of 30 million common shares may be
granted during the five-year period ending in 2001 under the UPS 1996 Stock
Option Plan. Except in the case of death, disability or retirement, options are
exercisable only during a limited period after the expiration of five years from
the date of grant but are subject to earlier cancellation or exercise under
certain conditions.
Following is an analysis of options for shares of common stock issued and
outstanding:
<TABLE>
<CAPTION>
Weighted Average Number of Shares
---------------- -----------------
Exercise Price (in thousands)
---------------- -----------------
<S> <C> <C>
Outstanding at January 1, 1996............................................................ $19.16 19,333
Exercised................................................................................. $15.25 (3,474)
Granted................................................................................... $27.00 3,322
Canceled.................................................................................. $21.64 (225)
------
Outstanding at December 31, 1996.......................................................... $21.21 18,956
Exercised................................................................................. $16.50 (3,956)
Granted................................................................................... $29.75 3,262
Canceled.................................................................................. $22.72 (313)
------
Outstanding at December 31, 1997.......................................................... $23.77 17,949
Exercised................................................................................. $18.75 (3,894)
Granted................................................................................... $32.00 4,150
Canceled.................................................................................. $24.75 (220)
------
Outstanding at December 31, 1998.......................................................... $26.74 17,985
====== ======
</TABLE>
No options were exercisable at December 31, 1998, 1997 or 1996. The
following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Remaining Life Weighted Average
(in thousands) (in years) Exercise Price
---------------- -------------------- ------------------
<S> <C> <C>
3,823 0.3 $21.25
3,721 1.3 $23.75
3,154 2.3 $27.00
3,168 3.3 $29.75
4,119 4.3 $32.00
----------------
17,985 2.3 $26.74
================ === ======
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
7. INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal ........................................................................ $ 917 $ 455 $ 333
State .......................................................................... 127 76 71
------ ----- -----
Total Current .............................................................. 1,044 531 404
------ ----- -----
Deferred:
Federal ........................................................................ 104 100 324
State .......................................................................... 13 13 36
------ ----- -----
Total Deferred ............................................................. 117 113 360
------ ----- -----
Total ...................................................................... $1,161 $ 644 $ 764
====== ===== =====
</TABLE>
Income before income taxes includes losses of international subsidiaries of
$20, $70 and $160 million for 1998, 1997 and 1996, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate for the years ended December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ --------- --------
<S> <C> <C> <C>
Statutory federal income tax rate................................................ 35.0% 35.0% 35.0%
State income taxes (net of federal benefit)...................................... 3.1 3.7 3.8
Other............................................................................ 1.9 2.8 1.2
---- ---- ----
Effective income tax rate........................................................ 40.0% 41.5% 40.0%
==== ==== ====
</TABLE>
Deferred tax liabilities and assets are comprised of the following at
December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Excess of tax over book depreciation ..................................................... $1,957 $1,727
Pension plans. ........................................................................... 265 300
Prepaid health and welfare ............................................................... 124 131
Leveraged leases ......................................................................... 62 87
Other .................................................................................... 400 402
------ ------
Gross deferred tax liabilities ........................................................... 2,808 2,647
------ ------
Other postretirement benefits ............................................................ 407 377
Loss carryforwards (international) ....................................................... 308 322
Insurance reserves ....................................................................... 104 74
Other .................................................................................... 229 229
------ ------
Gross deferred tax assets ................................................................ 1,048 1,002
Deferred tax assets valuation allowance .................................................. (308) (322)
------ ------
Net deferred tax assets .................................................................. 740 680
------ ------
Net deferred tax liability ............................................................... $2,068 $1,967
====== ======
</TABLE>
The valuation allowance decreased $14 million and $43 million during the
years ended December 31, 1998 and 1997, respectively.
UPS has international loss carryforwards of approximately $698 million as
of December 31, 1998. Of this amount, $324 million expires in varying amounts
through 2008. The remaining $374 million may be carried forward indefinitely.
These international loss carryforwards have been fully reserved in the deferred
tax assets valuation allowance due to the uncertainty resulting from a lack of
previous international taxable income within certain international tax
jurisdictions. In addition, a portion of these losses has been deducted on the
U.S. tax return, which could affect the amount of any future benefit.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
8. DEFERRED TAXES, CREDITS AND OTHER LIABILITIES
Deferred taxes, credits and other liabilities, as of December 31, consist
of the following (in millions):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred federal and state income taxes ................................................. $1,954 $1,829
Insurance reserves ...................................................................... 704 606
Other credits and noncurrent liabilities ................................................ 359 498
------ ------
$3,017 $2,933
====== ======
</TABLE>
9. OTHER OPERATING EXPENSES
The major components of other operating expenses for the years ended
December 31 are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Repairs and maintenance.............................................................. $ 864 $ 804 $ 823
Depreciation and amortization........................................................ 1,112 1,063 964
Purchased transportation............................................................. 1,519 1,374 1,306
Fuel................................................................................. 604 736 685
Other occupancy...................................................................... 375 395 388
Other expenses....................................................................... 2,878 3,099 2,847
------ ------ ------
$7,352 $7,471 $7,013
====== ====== ======
</TABLE>
10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is managed based on two primary segments of operation: package
and non-package. Package operations represent the core business of the Company
and are broken down into regional levels worldwide. Regional operations
managers are responsible for both domestic and export operations within their
geographic region with the exception of the U.S., which is further divided
between U.S. domestic and U.S. export operations. International package
operations include U.S. export operations as a separate geographic region. Non-
package operations, which include the UPS Logistics Group, are distinct from
package operations and are thus managed and reported separately. Based on the
requirements of FAS 131, reportable segments include U.S. domestic package
operations, international package operations and non-package operations.
In evaluating financial performance, management focuses on operating profit
as a segment's measure of profit or loss. Operating profit is before interest
expense, interest income, other non-operating gains and losses and income taxes.
The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies (Note 1), with certain expenses
allocated between the segments using activity-based costing methods.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
Segment information as of, and for the years ended December 31, is as
follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
U.S. Domestic Package:
Revenue............................................. $20,650 $18,868 $18,881
Operating profit.................................... $ 2,899 $ 1,654 $ 2,181
Assets.............................................. $11,225 $10,985 $ 9,958
International Package:
Revenue............................................. $ 3,237 $ 2,934 $ 2,989
Operating profit/(loss)............................. $ 56 $ (67) $ (281)
Assets.............................................. $ 2,325 $ 2,051 $ 2,053
Non-Package:
Revenue............................................. $ 901 $ 656 $ 498
Operating profit.................................... $ 135 $ 111 $ 129
Assets.............................................. $ 1,824 $ 1,858 $ 1,861
Consolidated:
Revenue............................................. $24,788 $22,458 $22,368
Operating profit.................................... $ 3,090 $ 1,698 $ 2,029
Assets.............................................. $17,067 $15,912 $14,954
</TABLE>
Non-package operating profit included $102, $111 and $129 million for 1998,
1997 and 1996, respectively, of intersegment profit with a corresponding amount
of operating expense included in the U.S. domestic package segment.
Consolidated assets include $1.693, $1.018 and $1.082 billion for 1998, 1997 and
1996, respectively, which are not allocated to individual segments.
Revenue by product type for the years ended December 31, is as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Letters and packages.......................... $23,887 $21,802 $21,870
Other......................................... 901 656 498
------- ------- -------
$24,788 $22,458 $22,368
======= ======= =======
</TABLE>
Geographic information as of, and for the years ended December 31, is as
follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
U.S.:
Revenue............................................. $22,252 $20,238 $20,108
Long-lived assets................................... $ 9,832 $10,063 $ 9,376
International:
Revenue............................................. $ 2,536 $ 2,220 $ 2,260
Long-lived assets................................... $ 1,810 $ 1,372 $ 1,323
Consolidated:
Revenue............................................. $24,788 $22,458 $22,368
Long-lived assets................................... $11,642 $11,435 $10,699
</TABLE>
Revenue, for geographic disclosure, is based on the location in which
service originates. Long-lived assets include property, plant and equipment,
long-term investments and goodwill.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
11. MARKETABLE SECURITIES
The following is a summary of marketable securities at December 31, 1998
(in millions):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated
Gains Losses Fair
Cost Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government securities............... $194 $2 $ - $196
U.S. corporate securities................ 188 2 - 190
Other debt securities.................... 2 - - 2
--------------------------------------------------------------------------------
Total debt securities............... 384 4 - 388
Equity securities........................ 6 - 5 1
--------------------------------------------------------------------------------
$390 $4 $5 $389
================================================================================
</TABLE>
The gross realized gains on sales of marketable securities totaled $6
million, and the gross realized losses totaled $1 million. The net adjustment to
unrealized holding losses on marketable securities included in other
comprehensive income, and as a separate component of shareowners' equity,
totaled $1 million.
The amortized cost and estimated fair value of marketable securities at
December 31, 1998, by contractual maturity, are shown below (in millions).
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
----------------------------------------------------------
<S> <C> <C>
Due in one year or less............................... $ 44 $ 44
Due after one year through three years................ 66 67
Due after three years through five years.............. 156 159
Due after five years.................................. 118 118
----------------------------------------------------------
384 388
Equity securities..................................... 6 1
---------------------------------------------------------
$390 $389
==========================================================
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, United Parcel Service of America, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
United Parcel Service of America, Inc.
(Registrant)
By: /s/ JAMES P. KELLY
---------------------
James P. Kelly
Chairman of the Board and Chief Executive Officer
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOHN W. ALDEN Vice Chairman of the Board, Senior
- -------------------------------------------- Vice President and Director March 30, 1999
John W. Alden
Director
- --------------------------------------------
William H. Brown, III
/s/ ROBERT J. CLANIN Senior Vice President, Chief March 30, 1999
- -------------------------------------------- Financial Officer, Treasurer and
Robert J. Clanin Director (Principal Financial and
Accounting Officer)
/s/ MICHAEL L. ESKEW Senior Vice President and Director March 30, 1999
- --------------------------------------------
Michael L. Eskew
/s/ JAMES P. KELLY Chairman of the Board, Chief March 30, 1999
- -------------------------------------------- Executive Officer and Director
James P. Kelly (Principal Executive Officer)
- ------------------------------------------- Director
Ann M. Livermore
- ------------------------------------------ Director
Gary E. MacDougal
/s/ JOSEPH R. MODEROW Senior Vice President, Secretary March 30, 1999
- -------------------------------------------- and Director
Joseph R. Moderow
Director
- --------------------------------------------
Kent C. Nelson
- ------------------------------------------- Director
Victor A. Pelson
- ------------------------------------------- Director
John W. Rogers
/s/ CHARLES L. SCHAFFER Senior Vice President and Director March 30, 1999
- --------------------------------------------
Charles L. Schaffer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ LEA N. SOUPATA Senior Vice President and Director March 30, 1999
- ----------------------------
Lea N. Soupata
- ---------------------------- Director
Robert M. Teeter
/s/ THOMAS H. WEIDEMEYER Senior Vice President and Director March 30, 1999
- ----------------------------
Thomas H. Weidemeyer
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
_____________________
UNITED PARCEL SERVICE
OF AMERICA, INC.
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
(3) Articles of Incorporation and Bylaws
(a) Restated Certificate of Incorporation Incorporated by Reference to Exhibit 4(iv)
of UPS to Form S-8 Registration Statement (No.
33-19622)
(b) Bylaws of UPS, as amended through Incorporated by Reference to Current Report
February 26, 1998 on Form 8-K filed March 4, 1998
(4) Instruments defining the rights of security
holders, including indentures
(a) Specimen Certificate of Capital Stock Incorporated by Reference to Exhibit 3(a) to
of UPS Form 10, as filed April 29, 1970
(b) UPS Managers Stock Trust Agreement, as Incorporated by Reference to Exhibit 4(b) to
amended and restated Post-Effective Amendment No. 1 to
Registration Statement on Form S-3 (No.
33-54297)
(c) Specimen Certificate of 8 3/8% Debentures Incorporated by Reference to Exhibit 4(c) to
due April 1, 2020 Registration Statement No. 33-32481, filed
December 7, 1989
(d) Indenture relating to 8 3/8% Debentures due Incorporated by Reference to Exhibit 4(c) to
April 1, 2020 Registration Statement No. 33-32481, filed
December 7, 1989
(e) UPS Employees Stock Trust Agreement Incorporated by Reference to Exhibit 4(iv)
to Registration Statement on Form S-8 (No.
33-62169) as filed August 28, 1995
(f) Specimen Certificate of $166,000,000 of Available to the Commission upon request
3.25% Swiss Franc Notes due October 22, 1999
(g) Indenture relating to $166,000,000 of Available to the Commission upon request
3.25% Swiss Franc Notes due October 22, 1999
(h) Specimen Certificate of Sterling 100 Available to the Commission upon request
million of 6.875% Notes due 2000
(i) Indenture relating to Sterling 100 Available to the Commission upon request
million of 6.8755 Note due 2000
(j) Specimen Certificate of $500,000,000 of Available to the Commission upon request
Temporary and Permanent Global Notes in
connection with the European medium term
note program
(k) Indenture relating to the $500,000,000 Available to the Commission upon request
European Medium term note program
(l) Specimen Certificate of Exchange Offer Incorporated by Reference to Exhibit T-3C to
Notes Due 2030 Form T-3 filed December 18, 1997
(m) Indenture relating to Exchange Offer Incorporated by Reference to Exhibit T-3C to
Notes Due 2030 Form T-3 filed December 18, 1997
(n) Specimen Certificate of $200,000,000 of Available to the Commission upon request
6.625% Euro Notes due April 25, 2001
(o) Indenture relating to $200,000,000 of Available to the Commission upon request
6.625% Euro Notes due April 25, 2001
(p) Specimen Certificate of $300,000,000 of Available to the Commission upon request
6.25% Euro Notes due July 7, 2000
(q) Indenture relating to $300,000,000 of Available to the Commission upon request
6.25% Euro Notes due July 7, 2000
(r) Specimen Certificate of $1,000,000,000 Available to the Commission upon request
of Temporary and Permanent Global Notes in
connection with the European medium term
note program
(s) Indenture relating to the Available to the Commission upon request
$1,000,000,000 European medium term note
program
(t) Indenture relating to $2,000,000,000 of Incorporated by Reference to Exhibit 4.1 to
debt securities Pre-Effective Amendment No. 1 to
Registration Statement on Form S-3 (No.
333-08369) as filed January 26, 1999
(u) Subscription Agreement - Cash Purchase Filed herewith as Exhibit 4(u)
(v) Subscription Agreement - Eligible Fiduciaries Filed herewith as Exhibit 4(v)
(10) Material Contracts
(a) UPS Thrift Plan, as Amended and
Restated January 1, 1976, including
Amendment Nos. 1 and 2
(1) Amendment No. 3 to the UPS Thrift Plan Incorporated by Reference to Exhibit 20(b)
to 1980 Annual Report on Form 10-K
(2) Amendment No. 4 to the UPS Thrift Plan Incorporated by Reference to Exhibit 20(b)
to 1981 Annual Report on Form 10-K
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(3) Amendment No. 5 to the UPS Thrift Plan Incorporated by Reference to Exhibit 19(b)
to 1983 Annual Report on Form 10-K
(4) Amendment No. 6 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(4) to 1985 Annual Report on Form 10-K
(5) Amendment No. 7 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(5) to 1985 Annual Report on Form 10-K
(6) Amendment No. 8 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(6) to 1987 Annual Report on Form 10-K
(7) Amendment No. 9 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(7) to 1987 Annual Report on Form 10-K
(8) Amendment No. 10 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(8) to 1990 Annual Report on Form 10-K
(9) Amendment No. 11 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(9) to 1991 Annual Report on Form 10-K
(10) Amendment No. 12 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(10) to 1991 Annual Report on Form 10-K
(11) Amendment No. 13 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(11) to 1991 Annual Report on Form 10-K
(12) Amendment No. 14 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(12) to 1991 Annual Report on Form 10-K
(13) Amendment No. 15 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(13) to 1992 Annual Report on Form 10-K
(14) Amendment No. 16 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(14) to 1993 Annual Report on Form 10-K
(15) Amendment No. 17 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(15) to 1993 Annual Report on Form 10-K
(16) Amendment No. 18 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(16) to 1994 Annual Report on Form 10-K
(17) Amendment No. 19 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(17) to 1994 Annual Report on Form 10-K
(18) Amendment No. 20 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(18) to 1995 Annual Report on Form 10-K
(19) Amendment No. 21 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(19) to 1995 Annual Report on Form 10-K
(20) Amendment No. 22 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(20) to 1996 Annual Report on Form 10-K
(21) Amendment No. 23 to the UPS Thrift Plan Incorporated by Reference to Exhibit
10(a)(21) to 1996 Annual Report on Form 10-K
(b) UPS Retirement Plan (including Incorporated by Reference to Exhibit 9 to
Amendments 1 through 4). 1979 Annual Report on Form 10-K
(1) Amendment No. 5 to the UPS Retirement Incorporated by Reference to Exhibit 20(a)
Plan to 1980 Annual Report on Form 10-K
(2) Amendment No. 6 to the UPS Retirement Incorporated by Reference to Exhibit 19(a)
Plan to 1983 Annual Report on Form 10-K
(3) Amendment No. 7 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(3) to 1984 Annual Report on Form 10-K
(4) Amendment No. 8 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(4) to 1985 Annual Report on Form 10-K
(5) Amendment No. 9 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(5) to 1985 Annual Report on Form 10-K
(6) Amendment No. 10 to the UPS Retirement Incorporated by Reference to Exhibit 19(a)
Plan to 1988 Annual Report on Form 10-K
(7) Amendment No. 11 to the UPS Retirement Incorporated by Reference to Exhibit 19(b)
Plan to 1988 Annual Report on Form 10-K
(8) Amendment No. 12 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(8) to 1989 Annual Report on Form 10-K
(9) Amendment No. 13 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(9) to 1989 Annual Report on Form 10-K
(10) Amendment No. 14 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(10) to 1990 Annual Report on Form 10-K
(11) Amendment No. 15 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b0(11) to 1992 Annual Report on Form 10-K
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(12) Amendment No. 16 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(12) to 1994 Annual Report on Form 10-K
(13) Amendment No. 17 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(13) to 1994 Annual Report on Form 10-K
(14) Amendment No. 18 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(14) to 1995 Annual Report on Form 10-K
(15) Amendment No. 19 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(15) to 1995 Annual Report on Form 10-K
(16) Amendment No. 20 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(16) to 1995 Annual Report on Form 10-K
(17) Amendment No. 21 to the UPS Retirement Incorporated by Reference to Exhibit
Plan 10(b)(17) to 1996 Annual Report on Form 10-K
(18) Amendment No. 22 to the UPS Retirement Incorporate by Reference to Exhibit
Plan 10(b)(18) to 1997 Annual Report on Form 10-K
(19) Amendment No. 23 to the UPS Retirement Filed herewith as Exhibit 10(b)(19)
Plan Incorporated by Reference to Definitive
(c) UPS Managers Incentive Plan (as amended) Proxy Statement for 1992 Special Meeting of
Shareholders
(d) Indemnification Contracts or Incorporated by Reference to Item 8 of Form
Arrangements 10, as filed April 29, 1970
(e) Agreement of Sale between Delaware Incorporated by Reference to Exhibit 10(m)
County Industrial Development Authority to 1985 Annual Report on Form 10-K
and Penallen Corporation, dated as of December
1, 1985; Remarketing Agreement, dated as of
December 1, 1985, among United Parcel
Service of America, Inc., Penallen
Corporation and Salomon Brothers Inc.;
Guarantee Agreement, dated as of December
1, 1985, between United Parcel Service of
America, Inc. and Irving Trust Company;
Guarantee by United Parcel Service of
America, Inc. to Delaware County Industrial
Development Authority, dated as of December
1, 1985.
(f) Receivables Purchase and Sale Incorporated by Reference to Exhibit 10(l)
Agreement, dated as of November 24, 1987, to 1987 Annual Report on Form 10-K
among United Parcel Service, Inc., an Ohio
corporation, United Parcel Service, Inc., a
New York corporation, United Parcel Service
of America, Inc., Cooperative Receivables
Corporation and Citicorp North America, Inc.
(g) Receivables Purchase and Sale Incorporated by Reference to Exhibit 10(m)
Agreement, dated as of November 24, 1987, to 1987 Annual Report on Form 10-K
among United Parcel Service, Inc., an Ohio
corporation, United Parcel Service, Inc., a
New York corporation, United Parcel Service
of America, Inc., Citibank, N.A., and
Citicorp North America, Inc.
(h) Membership Agreement, dated as of Incorporated by Reference to Exhibit 10(n)
November 24, 1987, by and between to 1987 Annual Report on Form 10-K
Cooperative Receivables Corporation and
United Parcel Service of America, Inc.
(i) Amended and Restated Facility Lease Incorporated by Reference to Exhibit 10(r)
Agreement, dated as of November 6,1990, to 1990 Annual Report on Form 10-K
among Overseas Partners Leasing, Inc.,
United Parcel Service General Services Co.
and United Parcel Service of America, Inc.
(j) Amended and Restated Facility Lease Incorporated by Reference to Exhibit 10(s)
Agreement, dated as of November 6, 1990, to 1990 Annual Report on Form 10-K
among Overseas Partners Leasing, Inc.,
United Parcel Service Co. and United Parcel
Service of America, Inc.
(k) Agreement of Sale, dated as of December Incorporated by Reference to Exhibit 10(t)
28, 1989, between Edison Corporation and to 1989 Annual Report on Form 10-K
Overseas Partners Leasing, Inc.
</TABLE>
E-3
<PAGE>
<TABLE>
<S> <C> <C>
(l) Assignment and Assumption Agreement, Incorporated by Reference to Exhibit 10(u)
dated as of December 28, 1989, between and to 1989 Annual Report on Form 10-K
among Edison Corporation, Overseas Partners
Leasing, Inc., McBride Enterprises, Inc. and
Ramapo Ridge-McBride Office Park.
(m) UPS Deferred Compensation Plan for Incorporated by Reference to Exhibit 10(v)
Non-Employee Directors. to 1990 Annual Report on Form 10-K
(n) UPS Retirement Plan for Outside Incorporated by Reference to Exhibit 10(w)
Directors. to 1990 Annual Report on Form 10-K
(o) UPS Savings Plan, as Amended and Incorporated by Reference to Exhibit 10(x)
Restated, including Amendment Nos. 1-5. to 1990 Annual Report on Form 10-K
(1) Amendment No. 6 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(1) to 1990 Annual Report on Form 10-K
(2) Amendment No. 7 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(2) to 1991 Annual Report on Form 10-K
(3) Amendment No. 8 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(3) to 1992 Annual Report on Form 10-K
(4) Amendment No. 9 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(4) to 1992 Annual Report on Form 10-K
(5) Amendment No. 10 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(5) to 1992 Annual Report on Form 10-K
(6) Amendment No. 11 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(6) to 1994 Annual Report on Form 10-K
(7) Amendment No. 12 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(7) to 1994 Annual Report on Form 10-K
(8) Amendment No. 13 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(8) to 1994 Annual Report on Form 10-K
(9) Amendment No. 14 to the UPS Savings Plan Incorporated by Reference to Exhibit
10(x)(9) to 1994 Annual Report on Form 10-K
(10) Amendment No. 15 to the UPS Savings Incorporated by Reference to Exhibit
Plan 10(x)(10) to 1994 Annual Report on Form 10-K
(11) Restatement Amendment No. 1 to the UPS Incorporated by Reference to Exhibit
Savings Plan 10(x)(11) to 1996 Annual Report on Form 10-K
(12) Restatement Amendment No. 2 to the UPS Incorporated by Reference to Exhibit
Savings Plan 10(x)(12) to 1995 Annual Report on Form 10-K
(13) Restatement Amendment No. 3 to the UPS Incorporated by Reference to Exhibit
Savings Plan 10(o)(13) to 1996 Annual Report on Form 10-K
(14) Restatement Amendment No. 4 to the UPS Incorporated by Reference to Exhibit
Savings Plan 10(o)(14) to 1996 Annual Report on Form 10-K
(15) Restatement Amendment No. 5 to the UPS Incorporated by Reference to Exhibit
Savings Plan 10(o)(15) to 1996 Annual Report on Form 10-K
(16) Restatement Amendment No. 6 to the UPS Incorporate by reference to Exhibit
Savings Plan 10(o)(16) to 1997 Annual Report on Form 10-K
(p) Credit Agreement (364-Day Facility) Incorporated by Reference to Exhibit 10(a)
dated April 30, 1998 among United Parcel to Quarterly Report on Form 10-Q for the
Service of America, Inc., the initial Quarter Ended March 30, 1998
lenders named therein, CitiCorp Securities,
Inc. as Co-Arranger and BancAmerica
Robertson as Co-Arranger and Bank of America
NT & SA., as Agent, and Citibank, N.A., as
Agent.
(q) Credit Agreement (Five-Year Facility) Incorporated by Reference to Exhibit 10(b)
dated April 30, 1998 among United Parcel to the Quarterly Report on Form 10-Q for the
Service of America, Inc., the initial Quarter Ended March 30, 1998
lenders named therein, Citicorp Securities,
Inc. as Co-Arranger and BancAmerica
Robertson as Co-Arranger and Bank of America
NT & SA as Agent and Citibank, N.A., as
Agent.
(r) UPS 1991 Stock Option Plan (Amended and Incorporated by Reference to Appendix A to
Restated as of February 20, 1992) Definitive Proxy Statement for 1995 Annual
Meeting of Shareholders
(s) UPS Excess Coordinating Benefit Plan Incorporated by Reference by Exhibit 10(s)
to 1997 Annual Report on Form 10-K
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(t) UPS 1997 Employees Stock Purchase Plan Incorporated by Reference to Exhibit 99 to the Form S-8
Registration Statement No. 333-23971, as filed on
March 26, 1997
(u) UPS 1997 Managers Stock Purchase Plan Incorporated by Reference to Exhibit 99 to the Form S-8
Registration Statement No. 333-23971, as filed on
March 26, 1997
(1) First Amendment to the UPS 1997 Managers Stock Filed herewith as Exhibit 10(u)(1)
Purchase Plan
(v) UPS 1996 Stock Option Plan, as amended and restated Incorporated by Reference to Exhibit 10(a) to Quarterly
Report on Form 10-Q for the Quarter ended September 30,
1997
(w) UPS Qualified Stock Ownership Plan and Trust Agreement Incorporated by Reference to Exhibit 4.1 to Registration
Statement No. 333-67479, filed November 18, 1998
</TABLE>
<TABLE>
<S> <C> <C>
(21) Subsidiaries of the Registrant Filed herewith as Exhibit 21
(23) Consent of Deloitte & Touche LLP Filed herewith as Exhibit 23
(27) Financial Data Schedules Filed with EDGAR version of this 1998 Annual Report on Form
10-K
</TABLE>
E-5
<PAGE>
EXHIBIT 4 (U)
SUBSCRIPTION AGREEMENT -- CASH PURCHASE
To subscribe to Units, complete, sign, date and forward an original of this
Subscription Agreement with the enclosures set forth below first to the District
Controller (for the district in which you are employed) to verify eligibility,
and then to address below if requested by the District Controller
<TABLE>
FOR U.S. MAIL FOR NEXT DAY AIR:
<S> <C> <C>
United Parcel Service of America, Inc. United Parcel Service of America, Inc. [_] Management- Managers Stock Trust
c/o First Union National Bank c/o Employee Shareholder Services CHECK ONE [_] Hourly Union- Employees Stock
P.O Box 41784 First Union National Bank Trust
Philadelphia, PA 19101-1784 PA 1204-ESS [_] Non-Union/Non-Management-
Telephone: (888) 663-8325 123 South Broad Street Employees Stock Trust
(215) 985-8569 Philadelphia, Pa 19109-1199
</TABLE>
Ladies and Gentlemen:
1. Purchase of Shares. I hereby subscribe to (not less than 20 Units nor
more than any limit on Units as that is imposed from time to time, together with
Units subscribed to by a trustee or custodian of my individual retirement
account) ______ Units, each consisting of 1 share of United Parcel Service of
America, Inc ("UPS") Common Stock subscribed to from UPS and 1/4 share of
Overseas Partners Ltd ("OPL") Common Stock subscribed to from OPL, except as may
be provided below. If such number of Units is not evenly divisible by four, UPS
and OPL may, at their option, (i) reject this subscription in full; (ii) notify
me and allow me to remit such additional amount as necessary to equal the
aggregate price of an integral multiple of four Units; or (iii) fulfill this
subscription for the purchase of the maximum number of Units wholly divisible by
four for which payment has been received and refund any excess monies to me.
I enclose a check or money order payable to the order of "First Union
National Bank" as Transfer Agent in the amount of $__________, which equals the
product of the number of Units subscribed to hereby multiplied by the sum of
(i) the Current Price of a UPS share (as determined from the most recent UPS
Shareowners Letter) and (ii) one-fourth of the Current Price of an OPL share
(i.e. one-fourth of the net book value of an OPL's share as determined from
OPL's most recently published Annual Report to Shareowners).
2. Election. In the event that UPS and OPL determine, in their discretion,
that there are not enough UPS or OPL shares available to satisfy my subscription
for such shares contained in the Units, I hereby authorize UPS and OPL to do the
following:(please check one box)
[_] Substitute for such unavailable shares, to the fullest extent
possible, any available shares having a value equal to or less than
the amount I have remitted, and return the remainder (without
interest) to me.
[_] Fulfill my subscription to the fullest extent possible with available
Units and return the subscription amount intended for the Units which
are currently unavailable (without interest).
[_] Cancel my Subscription Agreement and return to me all amounts remitted
herewith, without interest.
3. Authorizations and Delivery Instructions.
(a) I hereby authorize UPS, as my agent, to deliver the UPS shares to
which I have subscribed (the "UPS Shares") to First Union National
Bank ("First Union"), as Trustee of the UPS Managers Stock Trust
(as amended and restated), or the UPS Employees Stock Trust, as
applicable (in either case, the "Stock Trust"), to enable the
Trustee to hold the UPS Shares in accordance with the Stock Trust;
and
(b) I hereby authorize OPL, as my agent, to deliver the OPL shares to
which I have subscribed (the "OPL Shares") to First Union, as
Custodian, to be held for my benefit as more fully described in
the Prospectus.
4. Further Provisions. I further acknowledge and agree that:
(a) My subscription is not subject to transfer or assignment by me;
(b) UPS and OPL each have the right, in their discretion, to accept
or reject my subscription;
(c) My subscription will become binding upon UPS and OPL only upon
acceptance by both UPS and OPL;
(d) My rights with respect to refund of funds held by First Union
pending delivery of shares, withdrawal or rejection of my
subscription are as set forth in the Prospectus, and will not
include interest thereon;
(e) The Units to which I have subscribed will be sold to me at the
Current Prices in effect at the time my subscription is accepted
by both UPS and OPL, which may be greater or less than the Current
Prices in effect at the date of this Subscription Agreement, and
any rights with respect to a change in the price of Units are as
set forth in the Prospectus;
(f) Upon acceptance by both UPS and OPL, this Subscription Agreement
shall be binding upon and share to the benefit of my heirs,
executors, administrators and personal representatives;
(g) I have read the Prospectus, and I am familiar with its terms;
(h) If I have not yet executed and delivered to UPS a UPS Managers
Stock Trust Deposit Agreement or UPS Employees Stock Trust Deposit
Agreement ("Deposit Agreement"). I enclose herewith a properly
executed Deposit Agreement with respect to the UPS Shares included
in this Subscription Agreement I understand that if a Deposit
Agreement is not on file on my behalf, my subscription will be
rejected by UPS, and
(i) This Subscription Agreement will be deemed to be a subscription
to UPS as to the UPS Shares and a subscription to OPL as to the
OPL Shares.
- -------------------------------------------------------------------------------
NOTE: All items below except the signature of the eligible employee and verifier
must be printed or typed. All signatures must be original. No photocopies will
be accepted.
<TABLE>
<S> <C> <C>
_______________________________ _______________________
ACCOUNT NUMBER (SSN) REGION DISTRICT NEW ACCOUNT (Check if Yes) [_]
______________________________ _______________________ ________________ ___________________
LAST NAME FIRST NAME MIDDLE INITIAL BIRTHDATE
______________________________________________________________ ________________ _______________________
STREET ADDRESS APT EMPLOYMENT DATE
___________________________ ______________ _______________ _____________ _______________________
CITY STATE ZIP CODE COUNTRY DAYTIME PHONE
_______________________ _____________________________________________________
DATE PRINT NAME OF PERSON VERIFYING ELIGIBILITY
_____________________________________________________ ______________________________________________________
EMPLOYEE SIGNATURE SIGNATURE OF PERSON VERIFYING ELIGIBILITY
</TABLE>
<PAGE>
EXHIBIT 4(V)
SUBSCRIPTION AGREEMENT-CASH PURCHASE
(Eligible Fiduciaries)
To subscribe to Units for a self-directed individual retirement account
("IRA"), both the eligible employee and the eligible fiduciary must complete,
sign, date and deliver an original of this Subscription Agreement and the
enclosures set forth below directly to United Parcel Service of America, Inc.,
c/o First Union National Bank at the address below.
<TABLE>
<CAPTION>
FOR U.S. MAIL: FOR NEXT DAY AIR:
<S> <C>
United Parcel Service of America, Inc. United Parcel Service of America, Inc. [_] Management-Managers Stock Trust
c/o First Union National Bank c/o Employee Shareholder Services CHECK ONE: [_] Hourly Union-Employees Stock
P.O.Box 41784 First Union National Bank Trust
Philadelphia, PA 19101-1784 PA 1204-ESS [_] Non- Union/ Non-Management-
Telephone:(888) 663-8325 123 South Broad Street Employees Stock Trust
(215) 985-8569 Philadelphia, PA 19109-1199
</TABLE>
Ladies and Gentlemen,
1. Purchase of Shares. The undersigned hereby subscribes to (not less
than 20 Units nor more than any limit on Units that is imposed from time to
time, together with the Units subscribed to by the employee whose name and
social security number is written below)_____Units on behalf of the account of
_________, each consisting of 1 share of United Parcel Service of America, Inc.
("UPS") Common Stock subscribed to from UPS and 1/4 share of Overseas Partners
Ltd ("OPL") Common Stock subscribed to from OPL, except as may be provided
below. If such number of Units is not evenly divisible by four, UPS and OPL may,
at their option, (i) reject this subscription in full; (ii) notify the
undersigned and allow the undersigned to remit such additional amount as
necessary to equal the aggregate price of an integral multiple of four Units; or
(iii) fulfill this subscription for the purchase of the maximum number of Units
wholly divisible by four for which payment has been received and refund any
excess monies to the undersigned.
The undersigned encloses a check or money order payable to the order of
"First Union National Bank" as Transfer Agent in the amount of $ , which
equals the product of the number of Units subscribed to hereby multiplied by
the sum of (i) the Current Price of a UPS share (as determined from the most
recent UPS Shareowners Letter) and (ii) one-fourth of the Current Price of an
OPL share (i.e. one-fourth of the net book value of an OPL share as determined
from OPL's most recently published Annual Report to Shareowners).
2. Election. In the event that UPS and OPL determine, in their
discretion, that there are not enough UPS or OPL shares available to satisfy the
undersigned's subscription for such shares contained in the Units, the
undersigned hereby authorizes UPS and OPL to do the following: (check one box)
[_] Substitute for such unavailable shares, to the fullest extent possible,
any available shares having a value equal to or less than the amount
the undersigned has remitted, and return the remainder (without
interest) to the undersigned.
[_] Fulfill this subscription to the fullest extent possible with available
Units and return to the undersigned the subscription amount intended
for the Units which are currently unavailable (without interest).
[_] Cancel this subscription Agreement and return to the undersigned all
amounts remitted herewith, without interest.
3. Authorizations and Delivery Instructions.
(a) The undersigned hereby authorizes UPS, as agent for the
undersigned, to deliver the UPS shares to which the undersigned
has subscribed (the "UPS Shares") to First Union National Bank
("First Union"), as Trustee of the UPS Managers Stock Trust (as
amended and restated), or the UPS Employees Stock Trust, as
applicable (in either case, the "Stock Trust"), to enable the
Trustee to hold the UPS Shares in accordance with the stock
Trust; and
(b) The undersigned hereby authorizes OPL, as agent for the
undersigned, to deliver the OPL shares to which the undersigned
has subscribed (the "OPL Shares") to First Union, as Custodian, to
be held as more fully described in the Prospectus.
4 Further Provisions. The undersigned acknowledges and agrees that:
(a) This subscription is not subject to transfer or assignment by the
undersigned;
(b) UPS and OPL each have the right, in their discretion, to accept or
reject the undersigned's subscription;
(c) The undersigned's subscription will become binding upon UPS and
OPL only upon acceptance by both UPS and OPL;
(d) The undersigned's rights with respect to refund of funds held by
First Union pending delivery of shares, withdrawal or rejection of
this subscription are as set forth in the Prospectus and will not
include interest thereon;
(e) The Units to which the undersigned has subscribed will be sold to
the undersigned at the Current Prices in effect at the time this
subscription is accepted by both UPS and OPL, which may be greater
or less than the Current Prices in effect at the date of this
Subscription Agreement, and the undersigned's rights with respect
to a change in the price of Units are as set forth in the
Prospectus;
(f) Upon acceptance by both UPS and OPL, the Subscription Agreement
shall be binding upon and inure to the benefit of the
undersigned's successors and assigns;
(g) The undersigned has read the Prospectus and is familiar with its
terms;
(h) If the undersigned has not yet executed and delivered to UPS a UPS
Managers Stock Trust Deposit Agreement or UPS Employees Stock
Trust Deposit Agreement ("Deposit Agreement"), the undersigned has
enclosed herewith a properly executed Deposit Agreement with
respect to the UPS Shares included in this Subscription Agreement.
The undersigned understands that if a Deposit Agreement is not on
file on behalf of the undersigned, this subscription will be
rejected by UPS; and
(i) This Subscription Agreement will be deemed to be a subscription
to UPS as to the UPS Shares and a subscription to OPL as to the
OPL Shares.
NOTE: All items below except the signature of the eligible employee and verifier
must be printed or typed. All signatures must be original. No photocopies will
be accepted.
_________________________________________ _____________________________
Name of eligible employee Name of eligible fiduciary
_________________________________________ _____________________________
Signature of eligible employee Authorized signatory
_________________________________________ _____________________________
Account number Address of eligible fiduciary
_________________________________________ _____________________________
Date City, State and Zip Code
_________________________________________ _____________________________
1/97 Social Security Number of Employee Date
<PAGE>
EXHIBIT 10(b)(19)
AMENDMENT NO. 23
TO THE
UPS RETIREMENT PLAN
(As Amended and Restated January 1, 1976)
WHEREAS, United Parcel Service of America, Inc. and its affiliated
corporations established the UPS Retirement Plan ("Plan") for the benefit of
their eligible employees, in order to provide benefits to those employees upon
their retirement, disability, or death, effective as of September 1, 1961; and
WHEREAS, the UPS Retirement Plan was amended and restated in its
entirety, replacing all of the provisions of the Plan then in effect, effective
as of January 1, 1976, to comply with the Employee Retirement Income Security
Act of 1974; and
WHEREAS, the Plan has been amended on a number of occasions since
January 1, 1976; and
WHEREAS, it is desired to amend the Plan further to increase the
maximum years of Benefit Service considered in determining the monthly pension
payable under the Plan and to increase the earnings threshold under the
alternative formula for certain participants.
NOW THEREFORE, pursuant to the authority vested in the Board of
Directors by Section 7.1 of the Plan, the UPS Retirement Plan is hereby amended
as follows, effective for Participants who have at least one Hour of Service as
an Employee on or after January 1, 1997:
1. Section 5.2(a)(1) hereby is amended to read as follows:
(1)(A) For a Participant who does not have at least
one Hour of Service as an Employee on or after January 1,
1997, 1/12th of 50 percent of a Participant's Final Average
Compensation (as defined under the terms of this Plan as of
the date of the Participant's retirement or other termination
of employment) less 1/12th of 50 percent of his or her Social
Security Amount where a Participant has 30 or more years of
Benefit Service. If a Participant has less than 30 years of
Benefit Service at his or her Annuity Starting Date, his or
her monthly benefit will be the amount calculated above
multiplied by a fraction, the numerator of which is the number
of years of Benefit Service to his or her Annuity Starting
Date, and the denominator of which is 30. However, in no event
shall the monthly benefit determined above be less than the
highest retirement benefit that could have been payable to the
Participant on an Early Retirement Date (adjusted for any
increases since such Early Retirement Date in the Primary Old
Age Insurance Benefit under the Federal Social Security Act).
<PAGE>
In the case of a Participant with at least one Hour
of Service as an Employee on or after January 1, 1992 for whom
the Normal Form of benefit is a single life annuity, the
benefit calculated in accordance with this paragraph (1) shall
not be less than the Participant's accrued benefit, if any,
calculated in accordance with this paragraph (1) and payable
in the form of a single life annuity with a guarantee of 120
monthly payments, but taking into account for this purpose
only that Compensation earned by the Participant through
December 31, 1991 and Benefit Service earned by him or her
through December 31, 1992.
(1)(B) For a Participant who has at least one Hour of
Service as an Employee on or after January 1, 1997, 1/12th of
58.33 percent of a Participant's Final Average Compensation
(as defined under the terms of this Plan as of the date of the
Participant's retirement or other termination of employment)
less 1/12th of 58.33 percent of his or her Social Security
Amount where a Participant has 35 or more years of Benefit
Service. If a Participant has less than 35 years of Benefit
Service at his or her Annuity Starting Date, his or her
monthly benefit will be the amount calculated above multiplied
by a fraction, the numerator of which is the number of years
of Benefit Service to his or her Annuity Starting Date, and
the denominator of which is 35. However, in no event shall the
monthly benefit determined above be less than the highest
retirement benefit that could have been payable to the
Participant on an Early Retirement Date (adjusted for any
increases since such Early Retirement Date in the Primary Old
Age Insurance Benefit under the Federal Social Security Act).
2. Section 5.2(a)(2)(B) hereby is amended to read as follows:
(B)(i) For a Participant with at least one Hour of
Service as an Employee on or after January 1, 1992 but without
at least one Hour of Service as an Employee on or after
January 1, 1997, the sum of
(I) 1/12th of two percent (2%) of the
Participant's Final Average Compensation up to
$48,000, multiplied by his or her years of Benefit
Service to a maximum of 30; plus
(II) 1/12th of one-half of one percent
(0.5%) of the Participant's Final Average
Compensation in excess of $48,000, multiplied by his
or her years of Benefit Service to a maximum of 30.
(B)(ii) For a Participant with at least one Hour of
Service as an Employee on or after January 1, 1997, the sum of
2
<PAGE>
(I) 1/12th of two percent (2%) of the
Participant's Final Average Compensation up to the
Threshold Amount, multiplied by his or her years of
Benefit Service to a maximum of 35; plus
(II) 1/12th of one-half of one percent
(0.5%) of the Participant's Final Average
Compensation in excess of the Threshold Amount,
multiplied by his or her years of Benefit Service to
a maximum of 35.
For purposes of this subparagraph (2)(B)(ii), the
term "the Threshold Amount" means $48,000 for a
Participant who was born in 1957 or later, $54,000
for a Participant who was born in or after 1951 but
before 1957 and $60,000 for a Participant born in
1950 or earlier.
Notwithstanding the foregoing, the benefit calculated in
accordance with this subparagraph (2)(B) shall not be less
than the Participant's accrued benefit, if any, calculated in
accordance with subparagraph (2)(A) and payable in the form of
a single life annuity with a guarantee of 120 monthly
payments, taking into account all Benefit Service earned by
the Participant through December 31, 1992.
IN WITNESS WHEREOF, United Parcel Service of America, Inc. based upon
action by its Board of Directors, has caused this Amendment No. 23 to be
executed this 21st day of December, 1998.
ATTEST: UNITED PARCEL SERVICE OF
AMERICA, INC.
/s/ Joseph R. Moderow /s/ James P. Kelly
- ---------------------------- ------------------------------
Secretary Chairman
3
<PAGE>
EXHIBIT 10(u)(1)
FIRST AMENDMENT TO THE
UPS 1997 MANAGERS STOCK PURCHASE PLAN
THIS FIRST AMENDMENT TO THE UPS 1997 MANAGERS STOCK PURCHASE PLAN (the
"Amendment") is made effective as of the 26th day of October, 1998 (the
"Effective Date"), by United Parcel Service of America, Inc., a corporation
organized under and doing business under the laws of the State of Delaware (the
"Company"). All capitalized terms in this Amendment have the meaning ascribed
to such term in the UPS 1997 Managers Stock Purchase Plan (the "Plan"), unless
otherwise stated herein.
W I T N E S S E T H :
WHEREAS, the Plan was adopted by the Board of the Company; and
WHEREAS, the Board of the Company desires to amend the Plan to permit
eligible participants to purchase shares of UPS Common Stock without purchasing
shares of OPL Common Stock;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
1. Section 2 of the Plan is hereby amended by deleting the definitions of
"Unit" and "Unit Price" in their entirety and substituting in lieu thereof the
following:
"`Unit' means one share of UPS Common Stock and one-fourth share
of OPL Common Stock, unless the eligible participant is permitted by
the Board pursuant to Section 4(E) below to purchase shares of UPS
Common Stock alone, in which case `Unit' means one share of UPS Common
Stock.
`Unit Price' means the sum of the Current Price of one share of
UPS Common Stock and the Current Price of one-fourth share of OPL
Common Stock, unless the eligible participant is permitted by the
Board pursuant to Section 4(E) below to purchase shares of UPS Common
Stock alone, in which case `Unit Price' means the Current Price of one
share of UPS Common Stock."
2. Section 4 of the Plan is hereby amended by adding the following as
Subsection (E):
"E. Notwithstanding the foregoing, the Board may, in its sole
discretion, permit eligible participants to purchase shares of UPS
Common Stock without also purchasing shares, or any fraction of a
share, of OPL Common Stock. In the event such permission is granted,
a `Unit' for purposes of this Plan shall mean one share of UPS Common
Stock and the `Unit Price' for purposes of this Plan shall mean the
Current Price of one share of UPS Common Stock."
<PAGE>
3. Except as specifically amended by this Amendment, the Plan shall
remain in full force and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Company has caused this FIRST AMENDMENT TO THE
UPS 1997 MANAGERS STOCK PURCHASE PLAN to be executed on the Effective Date.
UNITED PARCEL SERVICE OF AMERICA, INC.
-2-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNITED PARCEL SERVICE OF AMERICA, INC.
AS OF DECEMBER 31, 1998
Wholly-Owned Subsidiaires
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization Date of Organization
------------------ ---------------------- ---------------------
<S> <C> <C>
C.C.& E. I, L.L.C................................................ Delaware June 1, 1983
Crossroads Distribution Center Property Owners Association
Corporation..................................................... Illinois May 4, 1989
Merchants Parcel Delivery........................................ Washington April 5, 1909
Oasis Wholesale Supply Corporation............................... Louisiana June 15, 1998
The Orly Company L.L.C........................................... Delaware March 25, 1994
Trailer Conditioners, Inc........................................ Delaware March 22, 1982
United Parcel Service Co......................................... Delaware January 22, 1953
United Parcel Service General Services Co....................... Delaware November 4, 1957
United Parcel Service, Inc....................................... New York June 27, 1930
United Parcel Service, Inc....................................... Ohio March 19, 1934
United Parcel Service Oasis Supply Corporation................... Delaware September 9, 1997
UPICO Corporation................................................ Delaware December 26, 1974
UPINSCO, Inc..................................................... U.S. Virgin Islands December 1, 1994
UPS Air Leasing, Inc............................................. Delaware October 12, 1989
Avenair Corporation............................................. Nevada November 14, 1994
Nevair Corporation.............................................. Nevada November 10, 1994
UPS Aviation Services, Inc....................................... Delaware February 7, 1989
UPS Business Communications Services, Inc........................ Delaware July 31, 1998
UPS Capital Corporation.......................................... Delaware May 28, 1998
Glenlake Financial Corp......................................... Delaware July 29, 1998
Glenlake Financial Corp. of Kentucky............................ Kentucky December 10, 1998
UPS Customhouse Brokerage, Inc................................... Delaware April 1, 1985
UPS Deutschland Management L.L.C................................. Georgia November 21, 1997
UPS (Germany) Inc................................................ Delaware September 10, 1980
UPS International General Services Co............................ Delaware August 12, 1988
UPS International, Inc........................................... Delaware July 5, 1988
United Parcel Service Espana Ltd................................ Delaware December 4, 1992
United Parcel Service Italia, S.R.L............................. Delaware January 11, 1993
UPS International Forwarding, Inc............................... Delaware August 13, 1990
UPS of Argentina, Inc........................................... Delaware March 17, 1992
UPS of Brazil, Inc.............................................. Delaware November 12, 1993
UPS of China, Inc............................................... Delaware April 25, 1995
UPS of Greece, Inc.............................................. Delaware May 10, 1996
UPS of Norway, Inc.............................................. Delaware September 25, 1992
UPS of Portugal, Inc............................................ Delaware June 30, 1992
UPS Internet Services, Inc....................................... Delaware August 8, 1997
UPS Logistics Group, Inc......................................... Delaware May 24, 1996
Diversified Trimodal, Inc....................................... Delaware July 25, 1979
Pax Logistics International, Ltd................................ Delaware March 18, 1998
Roadnet Technologies, Inc....................................... Delaware May 12, 1986
SonicAir, Inc................................................... Arizona February 16, 1995
UPS Professional Services, Inc................................... Delaware December 8, 1997
UPS Truck Leasing, Inc........................................... Delaware September 11, 1991
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization Date of Organization
------------------ --------------------- --------------------
<S> <C> <C>
UPS Worldwide Logistics, Inc..................................... Delaware December 18, 1992
Worldwide Logistics - Nevada, Inc............................... Delaware January 4, 1999
Worldwide Logistics TriState, a UPS Worldwide Logistics
Company........................................................ Delaware June 25, 1998
Worldwide Dedicated Services, Inc............................... Delaware June 9, 1995
UPS Procurement Services Corporation............................. Delaware September 9, 1997
UPS Properties, Inc.............................................. Delaware May 9, 1990
El Paso Distribution Center, Inc. (One)......................... Texas September 17, 1990
El Paso Distribution Center, Inc. (Two)......................... Texas September 17, 1990
Tri-State Distribution, Inc. (One).............................. Illinois September 14, 1990
Tri-State Distribution, Inc. (Two).............................. Illinois September 14, 1990
Tri-State Distribution, Inc. (Three)............................ Illinois September 14, 1990
Tri-State Distribution, Inc. (Four)............................. Illinois September 14, 1990
Tri-State Distribution, Inc. (Five)............................. Illinois September 14, 1990
Vista Distribution Center, Inc. (One)........................... Nevada September 14, 1990
Vista Distribution Center, Inc. (Two)........................... Nevada September 14, 1990
Vista Distribution Center, Inc. (Three)......................... Nevada September 14, 1990
Vista Distribution Center Inc. (Four)........................... Nevada September 14, 1990.
Vista Distribution Center, Inc. (Five).......................... Nevada September 14, 1990.
UPS Telecommunications, Inc...................................... Delaware April 25, 1990
UPS Worldwide Forwarding, Inc.................................... Delaware August 12, 1988
Velleb, Inc...................................................... Washington October 30, 1995
II Morrow, Inc................................................... Oregon March 9, 1982
Adi Realty Company............................................... Idaho March 30, 1979
Alko Corporation................................................. Oklahoma December 7, 1976
Bardale Company.................................................. Illinois July 1, 1965
Basplaz Corporation.............................................. Delaware January 16, 1987
Brastock Corporation............................................. Nebraska April 15, 1974
Brookind Corporation............................................. Illinois January 26, 1970
Buckroe Corporation.............................................. Alabama September 17, 1984
Burdence Corporation............................................. Rhode Island September 26, 1969
Chasreal, Inc.................................................... West Virginia January 20, 1965
Cleve Company.................................................... Ohio December 19, 1958
Cova Corporation................................................. Virginia March 13, 1978
Dakkel Corporation............................................... South Dakota February 11, 1971
Dalho Corporation................................................ Texas January 29, 1970
Darico, Inc...................................................... Connecticut May 26, 1969
Daven Corporation................................................ Iowa June 14, 1976
Denado Corporation............................................... Colorado March 1, 1971
Edison Corporation............................................... New Jersey April 21, 1970
Elsil Corporation................................................ Illinois July 3, 1986
Evind Corporation................................................ Indiana November 6, 1969
Fardak Corporation............................................... North Dakota February 11, 1971
Galanta Company.................................................. Georgia July 15, 1968
Kylou, Inc....................................................... Kentucky May 24, 1982
Labar Corporation................................................ Louisiana October 12, 1983
Mascester Company, Inc........................................... Massachusetts June 13, 1969
Masreal Company, Inc............................................. Massachusetts November 8, 1962
Mexalb Corporation............................................... New Mexico September 15, 1975
Minneagen Real Estate Company.................................... Minnesota January 28, 1985
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization Date of Organization
------------------ --------------------- --------------------
<S> <C> <C>
Missjack Company................................................. Mississippi January 4, 1971
Montbill Corporation............................................. Montana July 22, 1976
Moroc Corporation................................................ Missouri October 6, 1972
Newbany Corporation.............................................. New York September 23, 1969
Nubee, Inc....................................................... New York December 9, 1943
Oshcon Corporation............................................... Wisconsin April 16, 1974
Parkprop, Inc.................................................... Kansas March 7, 1989
Penallen Corporation............................................. Pennsylvania July 7, 1969
Ralcar Corporation............................................... North Carolina April 20, 1970
Rockapar Corporation............................................. Arkansas April 30, 1973
Royoak, Incorporated............................................. Michigan July 10, 1969
Sallad Corporation............................................... Texas February 26, 1982
Saluta Corporation............................................... Utah February 22, 1977
Saskan Corporation............................................... Kansas June 16, 1969
Kacika Corporation.............................................. Kansas November 13, 1984
Socol Company, Inc............................................... South Carolina July 2, 1969.
Solacal Company.................................................. California February 16, 1966
Lacalos Corporation............................................. Nevada January 29, 1986
Sophil Company................................................... Pennsylvania August 22, 1962
South Seventh Corporation........................................ Washington June 11, 1969
Stadiana, Inc.................................................... Indiana April 1, 1959
Swanpor Corporation.............................................. Oregon May 13, 1970
Temphis Corporation.............................................. Tennessee September 10, 1969
Valacal Company.................................................. California July 7, 1966
Verbal Corporation............................................... Maryland September 18, 1969
Verlas Corporation............................................... Nevada March 24, 1971
Willmanch Corporation............................................ New Hampshire October 30, 1973
Wycas Corporation................................................ Wyoming June 10, 1976
Wyld, Inc........................................................ Delaware September 5, 1980
</TABLE>
International Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary Country of Organization Date of Organization
------------------ ----------------------- --------------------
<S> <C> <C>
UPS de Argentina, S.A............................................ Argentina September 25, 1998
United Parcel Service Pty. Ltd................................... Australia December 7, 1990
UPS Pty. Ltd..................................................... Australia January 19, 1990
United Parcel Service
Speditionsgesellschaft m.b.H.................................... Austria September 2, 1986
UPS AZ........................................................... Azerbaijan January 29, 1998
United Parcel Service (Bahrain) WLL.............................. Bahrain February 19, 1983
UPS Belarus...................................................... Belarus February 10, 1997
United Parcel Service Belgium N.V................................ Belgium March 25, 1986
UPS Europe N.V./S.A.............................................. Belgium September 24,1996
United Parcel Service (Bermuda) Ltd.............................. Bermuda June 25, 1985
UPS of Bermuda, Inc.............................................. Bermuda June 25, 1985
UPS do Brasil, Cia............................................... Brazil January 24, 1994
2855-8278 Quebec Inc............................................. Canada April 24, 1991
724352 Ontario Limited........................................... Canada June 19, 1987
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Country of
Name of Subsidiary Organization Date of Organization
----------------- ------------ --------------------
<S> <C> <C>
United Parcel Service Canada Ltd................................. Canada September 19, 1974
UPS Logistics Group Canada Ltd................................... Canada December 1, 1998
United Parcel Service Cayman Islands Limited.................... Cayman Islands June 5, 1992
United Parcel Service de Chile Limitada.......................... Chile January 14, 1997
UPS de San Jose, S.A............................................. Costa Rica July 27, 1995
UPS Denmark A/S.................................................. Denmark January 1, 1989
UPS Dominicana, S.A.............................................. Dominican Republic June 18, 1997
United Parcel Services Finland OY ............................... Finland January 28, 1987
United Parcel Service France S.N.C.............................. France March 31, 1994
UPS Worldwide Logistics SARL..................................... France August 14, 1997
UPS Georgia...................................................... Georgia March 17, 1997
Prost-Transports S.A. Speditionsgesellschaft gmbH............... Germany 1989
UPS Air Cargo Service GmbH....................................... Germany January 12, 1988
UPS Deutschland Inc. and Co. OHG. ............................... Germany October 12, 1997
UPS Grundstuecksverwaltungs GmbH................................. Germany February 25, 1985
UPS Holding GmbH................................................. Germany January 9, 1976
UPS Transport GmbH............................................... Germany August 5, 1976
UPS Transport GmbH II .......................................... Germany July 25, 1990
UPS Worldwide Logistics GmbH..................................... Germany August 17, 1993
UPS Parcel Delivery Service Limited.............................. Hong Kong November 6, 1987
UPS Hungary kft.................................................. Hungary November 1, 1997
United Parcel Service CSTC Ireland Limited...................... Ireland June 8, 1995
United Parcel Service of Ireland Limited........................ Ireland March 25, 1986
United Parcel Service Italia, S.R.L.............................. Italy July 30, 1986
UPS Japan Limited................................................ Japan October 14, 1986
United Parcel Service Jersey Limited............................. Jersey October 23, 1973
UPS (KZ)......................................................... Kazaksthan December 20, 1996
UPS-Korea Express Company Ltd. .................................. Korea January 30, 1996
United Parcel Service (M)Sdn. Bhd................................ Malaysia August 17, 1988
United Parcel Service de Mexico S.A., de C.V.................... Mexico November 22, 1989
UPS Worldwide Logistics de Mexico................................ Mexico June 3, 1996
UPS Plus SRL (Moldova). ......................................... Moldova July 25, 1997
Prost-Transports Frankrijk B.V................................... Netherlands July 20, 1988
United Parcel Service Nederland B.V.............................. Netherlands December 19, 1985
UPS Worldwide Logistics Nederland BV............................. Netherlands January 31, 1996
United Parcel Service Nigeria Ltd................................ Nigeria December 28, 1978
UPS Norge A/S.................................................... Norway August 8, 1986
UPS-Delbros International Express Co. Ltd. ...................... Philippines February 27, 1997
UPS International General Services Co.......................... Philippines November 19, 1996
UPS of Portugal -- Transportes
Internacionais de Mercadorias Lda............................... Portugal September 12, 1997
UPS Sovtransavto................................................. Russia December 1, 1989
United Parcel Service Singapore PTE Ltd......................... Singapore June 15, 1988
UPS Worldwide Logistics Asia Pte., Inc.......................... Singapore November 17, 1995
Sociedad Inversora Sanrelman, S.A................................ Spain November 17, 1988
United Parcel Service Espana Ltd. Y Compania, S.R.C............. Spain January 1, 1993
UPS Spain, S.L................................................... Spain March 9, 1988
United Parcel Service Sweden AB.................................. Sweden November 11, 1967
United Parcel Service (Switzerland).............................. Switzerland August 28, 1986
UPS Parcel Delivery Service Limited.............................. Thailand September 28, 1988
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Country of
Name of Subsidiary Organization Date of Organization
------------------ ------------ --------------------
<S> <C> <C>
Ukrainian Parcel Service......................................... Ukraine March 11, 1994
Atexco (1991) Limited............................................ United Kingdom March 6, 1985
Atlasair Limited................................................. United Kingdom July 24, 1947
Carryfast Limited................................................ United Kingdom August 4, 1941
United Parcel Service of America................................. United Kingdom October 28, 1991
UPS Air Couriers of America Ltd.................................. United Kingdom February 11, 1969
UPS (UK) Limited................................................. United Kingdom October 2, 1984
UPS Limited...................................................... United Kingdom July 24, 1985
UPS of America Limited........................................... United Kingdom March 5, 1985
UPS Worldwide Logistics Ltd...................................... United Kingdom November 28, 1995
</TABLE>
-5-
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-08369 (on Form S-3) and 333-72127, 333-70987, 333-67479, 333-24805, 333-
23969, 333-23971 and 33-46840 (on Form S-8) of United Parcel Service of America,
Inc. of our report dated February 8, 1999, appearing in this Annual Report on
Form 10-K of United Parcel Service of America, Inc. for the year ended
December 31, 1998.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,240
<SECURITIES> 389
<RECEIVABLES> 2,713
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,425
<PP&E> 19,554
<DEPRECIATION> 8,170
<TOTAL-ASSETS> 17,067
<CURRENT-LIABILITIES> 3,717
<BONDS> 2,191
0
0
<COMMON> 56
<OTHER-SE> 7,117
<TOTAL-LIABILITY-AND-EQUITY> 17,067
<SALES> 24,788
<TOTAL-REVENUES> 24,788
<CGS> 0
<TOTAL-COSTS> 21,698
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> 2,902
<INCOME-TAX> 1,161
<INCOME-CONTINUING> 1,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,741
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.14
</TABLE>
